This paper examines foreign investors' holdings of and trading patterns in Korean bonds and investigates the determinants of their behavior. We first find that, besides swap spreads, risk levels in Korea's financial markets and international funding circumstances also have a strong influence on foreigners' Korean bond investment. Using these factors as an index for opportunity costs, we then define and estimate risk-adjusted arbitrage opportunities and evaluate the patterns in foreigners' Korean bond trading.
We also look at foreigners' role and trading patterns in the Korean treasury bond futures market. Although foreigners undertake directional investment in the futures market, their net purchases are not found to be sizeable enough to exhibit market power and affect spot or futures prices. In the context of the spot and futures market structure, we examine factors that could affect foreigners' bond trading behavior, finding that both price factor and spot- future interaction factor do not affect foreigners' trading. However, expected futures prices in the next period are found to have an influence on foreigners' futures trading.
외국인 국내채권 투자의 결정요인 분석(Determinants of foreigners' Korean bond investment)
|Series Title; No||KIF 연구보고서 / 2010-03|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||한국금융연구원; KDI 국제정책대학원|