IMF Working Papers

Benchmark-Driven Investments in Emerging Market Bond Markets: Taking Stock

By Serkan Arslanalp, Dimitris Drakopoulos, Rohit Goel, Robin Koepke

September 25, 2020

Download PDF

Preview Citation

Format: Chicago

Serkan Arslanalp, Dimitris Drakopoulos, Rohit Goel, and Robin Koepke. Benchmark-Driven Investments in Emerging Market Bond Markets: Taking Stock, (USA: International Monetary Fund, 2020) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper reviews the role of benchmark-driven investments in EM local bond markets. We provide an overview of how key EM bond benchmark indices are constructed, how they affect the behavior of investment funds, and what are the likely implications for capital flows and policy-making. Several methods are presented suggesting that the amount of assets benchmarked against widely followed EM local-currency bond indices have risen fivefold since the mid-2000s to around $300 billion. Our review suggests that the benefits of index membership may be tempered by portfolio outflow risks for some countries. This is because benchmark-driven investments may increase the importance of external factors at the expense of domestic factors, raising the risks of outflows unrelated to recipient country fundamentals. Some countries may be disproportionately exposed to these risks, reflecting the way the indices are constructed.

Subject: Balance of payments, Bonds, Capital flows, Emerging and frontier financial markets, Financial institutions, Financial markets, Mutual funds, Securities markets

Keywords: Benchmark index, Benchmark-driven investment, Benchmarks, Bonds, Capital flows, Emerging and frontier financial markets, Global, Investment, Investor, Investor base, J.P. Morgan emerging market bond Index, J.P. Morgan government bond index-emerging markets, JPMorgan, Mutual funds, Portfolio choice, Push and pull, Securities markets, Surprise Index, WP

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/192

  • Stock No:

    WPIEA2020192

  • ISBN:

    9781513557588

  • ISSN:

    1018-5941

You May Also Be Interested In...

Implementing Risk-Based Solvency for Insurers—Lessons from Kenya, Mexico, and South Africa

November 22, 2024

Remittances in Times of Uncertainty: Understanding the Dynamics and Implications

November 22, 2024

New Evidence on the US Excess Return on Foreign Portfolios

November 22, 2024

Fourteenth Periodic Monitoring Report On The Status Of Management Implementation Plans In Response To Board-Endorsed IEO Recommendations

November 21, 2024