Bond Returns and the State of Financial Development

What is the effect of financial development on government bond returns in developed and emerging markets?

As Latin American borrowers queue up to tap the markets for hard currency debt – the busiest day of the year for the region as traders await a batch of US economic data due later this week – it’s worth noting the effect of geopolitical risk on bond returns in emerging and developed markets.

In this seminal study, the effect of financial development on government bond returns in developed and emerging markets is tested under different market conditions.

Using several of our ICRG risk metrics, and a quantile regression framework for quarterly panel data from 28 countries over 1999–2015, the results reveal that the effect of financial development on government bond returns differs according to conditions in the market and between developed and emerging markets.

The effect is positive and significant only in good market conditions for developed markets. For emerging markets financial development has a positive and significant effect for good market conditions but the effect is negative and significant for bad market conditions.

Have a quick look when time permits.

(https://www.sciencedirect.com/science/article/abs/pii/S1042443118301884)

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www.christophermckee.net

CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE

Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.