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Pierre Bui Quang

Doctorant(e)
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      Macroéconomie Internationale, Banque et Econométrie Financière

2018-52 "The effect of non-resident investments on the French sovereign spread"

Pierre Bui Quang

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Abstract
Cross-border investments in public debt securities are a key driver of sovereign yields. Everything else being equal, higher external demand lowers the cost of public financing through debt. However, from a financial stability perspective, it seems important to assess the resilience of sovereign debt against non-resident divestments, as cross-border flows tend to be volatile.
Our paper adresses this issue for the French public debt. It relies on estimating the increase in yields that is necessary for the domestic financial sector to reallocate enough of its securities portfolio to compensate for hypothetical non-resident divestments.
Our results indicate that if the share of non-residents in non-central bank holdings of French public debt had decreased regularly by an extra 1.25 pp compared to actual evolution, over the year from 2016-Q3 to 2017-Q3 (hence amounting to a 5 pp decrease in total), the sovereign yield would have been by around 40bp higher in 2017-Q3. Given the amount and the maturity of gross debt issuances over this period, and using the German bund yield curves for discounting, the corresponding extra cost for public finances in 2017-Q3 would have been around 6Bn €.
Classification-JEL
F34, G11, H63
Mot(s) clé(s)
government bond yields, external debt, investor base, home bias, portfolio choice
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2017-2 "International equity portfolio diversification: a sectoral and security-by-security analysis"

Pierre Bui Quang, Jonas Heipertz, Natacha Valla

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Abstract
International portfolio diversification has been shown to be subject to several puzzles, notably the home bias in equity investment, and the correlation bias. Taken together, those facts suggest that not only do investors tend to prefer domestic equity to foreign equity, but that, when they venture into cross-border investments, they do so in countries where stock prices are most correlated with home markets - contradicting the intuition that international investments are used to diversify portfolios more optimally. Our paper deals mainly with the correlation bias. It uses a dataset on French external financial portfolio positions produced by the Banque de France that allows a security-by-security analysis of international positions. We show that although insurance companies and investment funds are indeed more exposed to highly correlated markets, the way they arrange their portfolios at the security-level is consistent with the existence of a diversification motive.
Classification-JEL
G11; G15.
Mot(s) clé(s)
gross international investment positions, home bias, correlation puzzle, financial structure, macro-prudential regulation.
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