Working Paper: CEPR ID: DP12973
Authors: Matteo Maggiori; Brent Neiman; Jesse Schreger
Abstract: We establish currency as an important factor shaping global portfolios. Using a new security-level dataset, we demonstrate that investor holdings are biased toward their own currencies to such an extent that countries typically hold most of the foreign debt securities denominated in their currency. While large firms issue in foreign currency and borrow from foreigners, most firms issue only in local currency and do not directly access foreign capital. These patterns hold broadly across countries except for the United States, as foreign investors hold significant shares of US dollar bonds. The share of dollar-denominated cross-border holdings surged after 2008.
Keywords: capital flows; exorbitant privilege; home bias; reserve currencies
JEL Codes: E42; E44; F3; F55; G11; G15; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| currency denomination (F31) | investor behavior (G41) |
| home-currency bias (F31) | bond portfolios (G12) |
| investor nationality (F23) | home-currency bias (F31) |
| U.S. dollar-denominated securities (F34) | foreign investor behavior (F23) |
| global capital allocation shift post-2008 (F65) | dollar-denominated holdings (F31) |
| global capital allocation shift post-2008 (F65) | euro-denominated holdings (G15) |