Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Decomposing the U.S. external returns differential
Stephanie E. Curcuru
Tomas Dvorak
Francis E. Warnock
Abstract

We decompose the returns differential between U.S. portfolio claims and liabilities into the composition, return, and timing effects. Our most striking and robust finding is that foreigners exhibit poor timing when reallocating between bonds and equities within their U.S. portfolios. The poor timing of foreign investors--caused primarily by deliberate trading, not a lack of portfolio rebalancing--contributes positively to the U.S. external returns differential. We find no evidence that the poor timing is driven by mechanical reserve accumulation by emerging market countries; rather, it is driven almost entirely by the poor timing of rich, developed (mainly European) countries. Finally, while poor foreign timing appears to be persistent across subsamples, other terms in our decomposition (the composition and return effects and U.S. timing abroad), as well as the overall differential, are sometimes negative, sometimes positive, and usually indistinguishable from zero.


Download Full text
Download Full text
Cite this item
Stephanie E. Curcuru & Tomas Dvorak & Francis E. Warnock, Decomposing the U.S. external returns differential, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 977, 2009.
More from this series
JEL Classification:
Subject headings:
Keywords: Investments; Foreign ; Portfolio management ; Stocks
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal