Working Paper: NBER ID: w30089
Authors: Zhengyang Jiang; Arvind Krishnamurthy; Hanno Lustig
Abstract: Since 1980, foreign investors have timed their purchases and sales of U.S. Treasurys to yield particularly low returns. Their annual “dollar-weighted” returns, measured by the internal rate of return on their purchases and sales of Treasury bonds, are over 3.26 percentage points (pp) lower than a buy-and-hold strategy over the same horizon. Their returns are 1.62 pp lower than the returns earned by domestic investors. We also explore the heterogeneity across foreign investors, and find that official investors and developing country investors underperform more than other foreign investors. Our results are consistent with theories in which foreign investors are price-inelastic buyers of safe dollar assets, and increase their demand for dollar assets in stress periods.
Keywords: No keywords provided
JEL Codes: F32; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Timing of purchases and sales by foreign investors (F21) | Returns on U.S. Treasuries for foreign investors (G15) |
| Foreign investors tend to buy Treasuries when prices are high (G15) | Returns on U.S. Treasuries for foreign investors (G15) |
| Foreign investors tend to sell Treasuries when prices are low (G15) | Returns on U.S. Treasuries for foreign investors (G15) |
| Nature of the investor (G24) | Returns on U.S. Treasuries for foreign investors (G15) |
| Demand elasticity for safe dollar assets (E41) | Returns on U.S. Treasuries for foreign investors (G15) |
| Timing strategies employed by foreign investors (G15) | Returns on U.S. Treasuries for foreign investors (G15) |