International Currencies and Capital Allocation

Transcription

1 International Currencies and Capital Allocation Matteo Maggiori Brent Neiman Jesse Schreger Harvard University University of Chicago Columbia University November 2017

2 Overview Economic activity funded by foreigners far more than before Lack of data, unclear how foreign capital allocated (vs. domestic) Assemble $27 trillion of positions-level data from global mutual funds to expose key role of currency in borrower and lender behavior Rationalize/organize findings in framework with downward sloping demand by currency and fixed costs of foreign currency issuance

3 Fact 1: Strong Investor Currency Bias Currency Shares of Investment in Corporate Bonds Non EUR EUR Domestic Foreign Domestic Foreign Investment in EMU

4 Fact 1: Strong Investor Currency Bias Currency Shares of Investment in Corporate Bonds EUR Non EUR Domestic Foreign Domestic Foreign Investment in EMU

5 Fact 1: Strong Investor Currency Bias, Except USD Currency Shares of Investment in Corporate Bonds EUR Non EUR Investment in EMU USD Non USD Domestic Foreign Domestic Foreign Investment in USA

6 Fact 2: LC Firms Don t Get Foreign Cap Local Currency Only Issuers Portfolio Shares EMU Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing Domestic Foreign

7 Fact 2: LC Firms Don t Get Foreign Cap, Except in USA Local Currency Only Issuers Portfolio Shares EMU USA Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing Domestic Foreign

8 Fact 3: The Rise of the Dollar and Fall of the Euro Corporate Bonds, Cross-Border Positions :Q3 2005q3 2008q1 2010q3 2013q1 2015q3 USD EUR

9 Implications 1 Surprising importance of currency for international portfolios Original Sin pervasive among corporates of AEs, not just EMs Negative wealth effects of currency depreciations Home country bias is predominantly home currency bias

10 Implications 1 Surprising importance of currency for international portfolios Original Sin pervasive among corporates of AEs, not just EMs Negative wealth effects of currency depreciations Home country bias is predominantly home currency bias 2 Currency induces firm-level capital (mis-)allocation Only some firms borrow in foreign currency (FC) FC firms borrow from foreigners, local currency (LC) firms do not

11 Implications 1 Surprising importance of currency for international portfolios Original Sin pervasive among corporates of AEs, not just EMs Negative wealth effects of currency depreciations Home country bias is predominantly home currency bias 2 Currency induces firm-level capital (mis-)allocation Only some firms borrow in foreign currency (FC) FC firms borrow from foreigners, local currency (LC) firms do not 3 Novel perspective on International Currencies (ICs) IC issuers are exceptions to above patterns global taste for US dollar effectively opens capital account for USD-only issuers IC status less stable than generally thought: Euro collapse post-2008

12 Related Literature Country Portfolios with Aggregate Data: Eichengreen and Hausmann (1999,2005) Lane and Milesi-Ferreti (2007), Gourinchas and Rey (2007), Lane and Shambaugh (2010), Curcuru, Dvorak, Warnock (2008), Warnock et al. (2017) Cross-Border Mutual Fund Equity Flows/Positions: Chan, Covrig, Ng (2005), Hau and Rey (2004, 2008), Forbes et al. (2011), Raddatz and Schmukler (2012), Rigobon et al. (2013) Sectoral (and other) Heterogeneity in Gross Capital Flows: Lane et al. (2016), Kalemil-Ozcan et al. (2017), Koijen et al. (2016) Misallocation: Restuccia and Rogerson (2008), Hsieh and Klenow (2009), Banerjee and Moll (2010), Midrigan and Xu (2014), Gopinath et al. (2017) Some Implications: French and Poterba (1991), Lewis (1995), Coeurdacier and Rey (2013), Coeurdacier and Gourinchas (2016), Engel and Matsumato (2009), Gabaix and Maggiori (2015), Farhi and Maggiori (2017)

13 Outline 1 Novel Global Dataset on Mutual Fund Holdings 2 Home Currency Bias 3 Firm-level Heterogeneity and Capital (Mis-)allocation 4 Simple Framework of Borrower Currency Choice 5 Rise of Dollar and Fall of Euro 6 Conclusions / Next Steps

14 We Assemble Novel Dataset on Global Portfolio Holdings $27 Trillion (in 2015) of worldwide mutual fund positions CUSIP-level, monthly frequency, from 2003 Domestic and bilateral positions (including Non-U.S. pairs) Use Cusip Global Services and Capital IQ to match securities to ultimate parent and classify by nationality Merged-in securities attributes: currency, sovereign vs. corporate, maturity, coupon, sector, etc.

15 Coverage Relative to ICI Trillions (USD, Current) Trillions (USD, Current) ICI Morningstar ICI Morningstar US Equity US Fixed Income Trillions (USD, Current) Trillions (USD, Current) q1 2005q3 2009q1 2012q3 2016q1 2002q1 2005q3 2009q1 2012q3 2016q1 ICI Morningstar ICI Morningstar Non-US Equity Non-US Fixed Income

16 Data Quality and Representativeness How Does Morningstar Obtain Their Data? Morningstar Details Comparison with TIC TIC Portfolio Shares Mutual Fund Domicile and Nationality Holding Foreign Mutual Funds Tax Havens Treatment of Tax Havens Parent Firm Aggregation Mapping to Parents

17 Share of U.S. Gross Foreign Assets $ Trillions (Current) Bank Lending and Other Non-Mutual Fund Portfolio Investment Direct Investment Mutual Fund Portfolio Investment Steady at 14-15% of U.S. Foreign Assets Steady at 30-40% of U.S. Foreign Portfolio Investment

18 Outline 1 Novel Global Dataset on Mutual Fund Holdings 2 Home Currency Bias 3 Firm-level Heterogeneity and Capital (Mis-)allocation 4 Rise of Dollar and Fall of Euro 5 Conclusions / Next Steps

19 Share of Investment in Country i s Corporate Debt in i s Currency, 2015 Source Country (j) Country i AUS BRA CAN Destination Country (i) CHE CHL CHN DNK EMU GBR MEX NOR NZL

20 Share of Investment in Country i s Corporate Debt in i s Currency, 2015 Source Country (j) Country i Rest of World AUS BRA CAN Destination Country (i) CHE CHL CHN DNK EMU GBR MEX NOR NZL

21 Share of Investment in Country i s Corporate Debt in i s Currency, 2015 Source Country (j) Country i Rest of World Destination Country (i) AUS BRA CAN CHE CHL CHN DNK EMU GBR MEX NOR NZL USA

22 Share of Investment in Country i s Sovereign Debt in i s Currency, 2015 Source Country (j) Country i Rest of World Destination Country (i) AUS BRA CAN CHE CHL CHN DNK EMU GBR MEX NOR NZL USA

23 Share of Investment in Country i s Total Debt in i s Currency, 2015 Source Country (j) Country i Rest of World Destination Country (i) AUS BRA CAN CHE CHL CHN DNK EMU GBR MEX NOR NZL USA

24 Identifying the Importance of Currency: Micro Data Run security-level regressions to study how investors in different countries buy the debt of the same firm in different currencies: s j,p,c = α j + δ j,p + β j 1 {Currencyc =LC j } + Controls + ɛ j,p,c s j,p,c is share of security c issued by firm p that is held by country j δ j,p is a firm (ultimate parent) fixed effect Controls included for maturity and coupon Home currency dummy: 1 {Currencyc =LC j }

25 Within-Firm Variation, All Issuers s j,p,c = α j + δ j,p + β j 1 {Currencyc =LC j } + Controls + ɛ j,p,c j CAN CHE EMU GBR SWE USA Currency 0.922*** 0.661*** 0.581*** 0.528*** 0.806*** 0.612*** (0.011) (0.015) (0.014) (0.026) (0.022) (0.014) Obs. 34,237 34,237 34,237 34,237 34,237 34,237 # of Firms 8,879 8,879 8,879 8,879 8,879 8,879 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares, SE clustered at firm level

26 Within-Firm Variation, Robustness We consider broader sets of issuers and securities: Including structured finance, local gov t, sovranationals Everything we got All Bonds Other Bonds Multicurrency Issuers Only MC Issuers Domestic and Foreign Financials and Non-Financials: Financials Non-Financials Financial Firms Foreign Financials Foreign Non-Financials Non-Financial Firms Foreign Financial Firms Foreign Non-Financial Firms Accounting for security residency (i.e. NY-law bonds) Residency Removing the firm fixed effects (next)

27 Home Bias or Home-Currency Bias? Similar regression framework, but now consider three specifications: 1 Home country dummy: 1 {Countryp =j} 2 Home currency dummy: 1 {Currencyc =LC j } 3 Home country and home currency dummies s ip,j,p,c = α j + φ j 1 {Countryp =j} + β j 1 {Currencyc =LC j } + Controls + ɛ ip,j,p,c No firm fixed effects to allow for country variation Related to Burger, Warnock and Warnock (2017)

28 Bond Home Bias is Home-Currency Bias s ip,j,p,c = α j + φ j 1 {Countryp =j} + Controls + ɛ ip,j,p,c Only Country Only Currency Country and Currency Indicators Indicators Indicators φ R 2 β R 2 φ β R 2 CAN CHE EMU GBR SWE USA

29 Bond Home Bias is Home-Currency Bias s ip,j,p,c = α j + β j 1 {Currencyc =LC j } + Controls + ɛ ip,j,p,c Only Country Only Currency Country and Currency Indicators Indicators Indicators φ R 2 β R 2 φ β R 2 CAN CHE EMU GBR SWE USA

30 Bond Home Bias is Home-Currency Bias s ip,j,p,c = α j + φ j 1 {Countryp =j} + β j 1 {Currencyc =LC j } + Controls + ɛ ip,j,p,c Only Country Only Currency Country and Currency Indicators Indicators Indicators φ R 2 β R 2 φ β R 2 CAN CHE EMU GBR SWE USA

31 Outline 1 Novel Global Dataset on Mutual Fund Holdings 2 Home Currency Bias 3 Firm-level Heterogeneity and Capital (Mis-)allocation 4 Rise of Dollar and Fall of Euro 5 Conclusions / Next Steps

32 Foreign Currency Issuance Drives Access to Foreign Capital CAN Share of Firm s Debt Owned by Foreigners Share of Firm s Debt in Foreign Currency

33 Foreign Currency Issuance Drives Access to Foreign Capital Share of Firm s Debt Owned by Foreigners CAN Share of Firm s Debt in Foreign Currency Share of Firm s Debt Owned by Foreigners EMU Share of Firm s Debt in Foreign Currency Share of Firm s Debt Owned by Foreigners GBR Share of Firm s Debt in Foreign Currency Share of Firm s Debt Owned by Foreigners USA Share of Firm s Debt in Foreign Currency

34 Heterogeneous Ability to Issue in Foreign Currency Corporate Borrowers from CAN Number of Currencies Issuer s Rank by Total Borrowing

35 Number of Currencies Used by Corporate Borrowers CAN EMU Issuer s Rank by Total Borrowing Issuer s Rank by Total Borrowing GBR USA Issuer s Rank by Total Borrowing Issuer s Rank by Total Borrowing

36 A Simple Framework to Interpret These Findings N countries, each with (invested) wealth W i Assume bond holdings only depend on currency of denomination Only bonds are traded Specialist investors, fully segmented by currency Linear demand as in DeLong, Summers, & Shleifer (1990), Gromb & Vayanos (2002), Jeanne & Rose (2002), Gabaix & Maggiori (2015)

37 Currency-Specific Bond Demand Demand for debt of a firm in each currency: R p,$ = R f + Γ $ Q p,$ E p R p,e = R f + Γ e Q p,e E p, where Q p,k is dollar value of currency-k debt issued by firm p and E p is their starting capital or equity. Slope of demand curve is inverse of wealth investing in that currency: Γ $ = γ N j=1 θ $,jw j Γ e = γ N j=1 θ e,jw j, where θ i,j is country j s holdings of bonds in country i s currency

38 Firm Problem Firms differ in productivity A p, borrow to finance production All firms can borrow in LC, fixed cost C required to borrow in FC Accounting standards, treasury department, disclosure, road shows Cost of hedging and/or currency mismatch Firm p in EMU solves: max Q p,e,q p,$ A p K p R p,e Q p,e R p,$ Q p,$ C1 {Qp,$ >0}, where K p = E p + Q p,e + Q p,$. Key idea is that cost of borrowing increases with scale. At some point, worth paying C to reduce user cost. All firms will issue in LC. Firms issuing multiple currencies will be bigger, more productive (A p ), and more levered.

39 Key Characteristics of the Environment Define the international currency as that used most in denominating bonds (i.e. flattest demand, deepest market), or largest Θ k : where ω j = W j l W l = W j W. Θ k = j ω j θ k,j = γ W Γ k, There is benefit of being IC issuer (e.g. USA in 2015), LC firms funding cost reduced by accessing foreign capital Simple framework generates that in international currency issuer: 1 LC-only firms attract more foreign financing than in other countries 2 LC-only firms constitute a larger share of total borrowing 3 LC-only firms bigger, more levered (vs MC firms) than elsewhere

40 Foreigners Avoid Local Currency Issuers CAN Firm Shares in Domestic and Foreign Portfolios Share of domestic portfolio Share of foreign portfolio All Issuers Issuer s Rank by Domestic Borrowing Only Local Currency Issuers Issuer s Rank by Domestic Borrowing Domestic Foreign

41 Foreigners Avoid LC Issuers Debt, Not Their Shares CAN Local Currency Only Issuers Debt Equities Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing Domestic Foreign

42 Local Currency Only Issuers CAN EMU Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing GBR Issuer s Rank by Domestic Borrowing Domestic Foreign

43 Local Currency Only Issuers CAN EMU Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing GBR USA Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing Domestic Foreign

44 Foreigners Avoid Local Currency Issuers... Except for USD USA Firm Shares in Domestic and Foreign Portfolios Share of domestic portfolio Share of foreign portfolio All Issuers Only Local Currency Issuers Issuer s Rank by Domestic Borrowing Issuer s Rank by Domestic Borrowing Domestic Foreign

45 US LC Issuers Place Debt Similarly at Home and Abroad USA NOR CHE EMU DNK CAN GBR SWE AUS NZL LC only Firms Share in Domestic Portfolios (Sum of Red Dots) LC only Firms Share in Foreign Portfolios (Sum of Blue Diamonds)

46 US LC Issuers Account for More Borrowing than Elsewhere LC only Firms Share of Country s Borrowing USA NOR CHE EMU DNK CAN GBR SWE AUS NZL

47 Outline 1 Novel Global Dataset on Mutual Fund Holdings 2 Home Currency Bias 3 Firm-level Heterogeneity and Capital (Mis-)allocation 4 Rise of Dollar and Fall of Euro 5 Conclusions / Next Steps

48 Has USD Always Been the International Currency? Corporate Bonds, Cross-Border Positions :Q3 2005q3 2008q1 2010q3 2013q1 2015q3 USD EUR

49 Pervasive Shift from EUR to USD (i.e. Θ e, Θ $ ) Specification 2005q1 2008q1 2016q1 Long Difference (1) All Bonds USD EUR (2) All Bonds Held by Foreigners USD EUR (3) Govt Bonds Held by Foreigners USD EUR (4) Corp Bonds Held by Foreigners USD EUR (5) Non-Financial Corp Bonds Held by Foreigners USD EUR (6) Corp by Foreigners, Ex-USA/EMU USD EUR

50 Composition and FX Changes Could in principle be caused by compositional shifts in data coverage having little to do with currency Control for entry/exit by plotting time FE from regressions ( ) Investment of j in i in currency x Investment of j in i = φ t x + α i,j + ɛ t i,j,x Control for FX changes by using constant 2005 exchange rates Following slide plots φ t e and φt $

51 The Rise of the Dollar and Fall of the Euro Corporate Bonds, Cross-Border Positions, Fixed Effects, Constant FX q3 2008q1 2010q3 2013q1 2015q3 USD EUR

52 Conclusion New dataset to examine global capital flows at the micro level Striking importance of currency in portfolio determination, easily rationalized in model with fixed costs to issue in foreign currency Leads to: Very different take on home bias Novel benefits of issuing an international currency: Akin to opening capital account for LC-only borrowers Implications of rise of the Dollar and fall of the Euro

53 [Extra Slides]

54 Estimating Investor Currency Preferences Prior analyses suggest currency preference dominant factor in shift, but could possibly also reflect: bond type, residency, etc. Use model and micro data together to isolate role of currency in driving changes over time in objects we ve emphasized All we need to do is use those same security level regressions: s i,p,c = α i + δ i,p + β i 1 {LCc =LC i } + Controls + ɛ i,p,c W j (1 θ i,j ) W W i Solve for 2 unknowns θ i,i and η i = j i ) (1 α i β i θ i,i + ω ( ) i α i + β i η i = 1 ω i (1 α i ) θ i,i + ω i 1 ω i α i η i = 1 + α i from 2 equations: ω ( ) i α i + β i 1 ω i

55 Within-Firm Variation, Multi-Currency Issuers s j,p,c = α j + δ j,p + β j 1 {Currencyc =LC j } + Controls + ɛ j,p,c j CAN CHE EMU GBR SWE USA Currency 0.921*** 0.660*** 0.579*** 0.524*** 0.804*** 0.612*** (0.009) (0.013) (0.013) (0.022) (0.019) (0.013) Obs. 5,016 6,927 12,524 9,386 2,627 12,692 # of Firms R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares, SE clustered at firm level Back

56 Portfolio Differences, Firms with only LC Debt Density Log Portfolio Ratio USA GBR EMU Overweight in Domestic Portfolio Overweight in Foreign Portfolio

57 Portfolio Differences, Including Equity European Monetary Union Density Log Portfolio Ratio Debt - LC Only Debt - Some/All FC Equity - LC Only Equity - Some/All FC Overweight in Domestic Portfolio Overweight in Foreign Portfolio

58 Portfolio Differences, Including Equity United States Density Log Portfolio Ratio Debt - LC Only Debt - Some/All FC Equity - LC Only Equity - Some/All FC Overweight in Domestic Portfolio Overweight in Foreign Portfolio

59 Country-Currency-Interaction Table 1: WLS: Currency of Denomination and Nationality of Investors CAN CHE EMU GBR NOR USA Country 0.046*** 0.004*** 0.124*** 0.030*** 0.024*** (0.007) (0.001) (0.007) (0.003) (0.006) (0.007) Currency 0.941*** 0.565*** 0.658*** 0.517*** 0.588*** 0.572*** (0.010) (0.006) (0.006) (0.014) (0.041) (0.005) Interaction *** 0.380*** *** *** 0.209*** (0.013) (0.062) (0.009) (0.020) (0.043) (0.009) Observations 157, , , , , ,330 R-squared Firm FE No No No No No No Controls Yes Yes Yes Yes Yes Yes q ip,j/ω,bc,p,c = α j +β j 1 {LCc =LC j }+γ j 1 {ip=j}+δ j 1 {LCc =LC j } 1 {ip=j}+controls+η ip,j/ω,bc,p,c Notes: Controls include maturity and coupon bins. Standard errors in parentheses. *** p 0.01, ** p 0.05, * p 0.1. Back

60 LUX Mutual Funds: 90% EU Investors Percentage of Investment in Luxembourg Equities/Fund Shares Share of Total EMU CHE GBR USA JPN CPIS data on bilateral claims on Luxembourg Funds

61 Residence of End-Investor Investing in foreign funds often illegal, not offered (concerns about foreign law), or tax disadvantageous TIC reports U.S. resident holdings of foreign funds shares (including all funds) and vice-versa: Foreign Fund Share of U.S. Outward Investment U.S. Fund Share of Foreign Inward Investment Dest Source AUS AUS BRA BRA CAN CAN CHE CHE CYM CYM EMU EMU GBR GBR JPN JPN MEX MEX ROW ROW Back

62 Tax Havens Luxembourg and Ireland are big mutual-fund investment centers representing a combined $6 Trillion Unlike other Domiciles, these clearly attract foreign investors Allowed by UCITS, but rules distinctinguish EU and Non-EU Given focus on currencies, pool Eurozone as EMU CPIS shows > 70% of Luxembourg funds held by EMU Back

63 Mapping Subsidiaries to Parents Problem: Hard to map subsidiaries to parents (country and industry) Petrobras subsidiary in the Cayman Islands issues debt The subsidiary has a different 6-Digit CUSIP The subsidiary is listed as a finance company Solution: Use CUSIP Associated Issuer and Capital IQ datasets to link borrowing to Brazilian energy firm Related: Base analyses off parent s nationality (i.e. Telecom Italia Italy), not security s residency (i.e. Telecom NY-law bond USA) Back

64 Within-Firm Variation: All Firms CAN CHE EMU GBR SWE USA Currency 0.922*** 0.660*** 0.580*** 0.529*** 0.803*** 0.611*** (0.010) (0.011) (0.008) (0.015) (0.014) (0.008) Obs. 34,457 34,457 34,457 34,457 34,457 34,457 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

65 Within-Firm Variation: Foreign Firms CAN CHE EMU GBR SWE USA Currency 0.940*** 0.644*** 0.612*** 0.534*** 0.730*** 0.568*** (0.012) (0.012) (0.009) (0.018) (0.026) (0.010) Obs. 32,387 33,233 26,082 31,926 33,363 23,066 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

66 Within-Firm Variation: Foreign Firms, International Issuance CAN CHE EMU GBR SWE USA Currency 0.973*** 0.487*** 0.580*** 0.593*** 0.713*** 0.577*** (0.005) (0.075) (0.023) (0.041) (0.063) (0.024) Obs. 4,272 4,015 3,578 3,951 4,368 3,757 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

67 Within-Firm Variation: Financial Firms CAN CHE EMU GBR SWE USA Currency 0.912*** 0.672*** 0.595*** 0.476*** 0.841*** 0.624*** (0.016) (0.012) (0.012) (0.023) (0.014) (0.012) Obs. 10,717 10,717 10,717 10,717 10,717 10,717 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

68 Within-Firm Variation: Non-Financial Firms CAN CHE EMU GBR SWE USA Currency 0.936*** 0.659*** 0.581*** 0.588*** 0.706*** 0.614*** (0.008) (0.024) (0.010) (0.021) (0.046) (0.009) Obs. 15,025 15,025 15,025 15,025 15,025 15,025 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

69 Within-Firm Variation: Foreign Financial Firms CAN CHE EMU GBR SWE USA Currency 0.917*** 0.651*** 0.626*** 0.452*** 0.756*** 0.578*** (0.022) (0.012) (0.013) (0.027) (0.040) (0.015) Obs. 10,013 10,208 8,521 9,809 10,331 7,275 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

70 Within-Firm Variation: Foreign Non-Financial Firms CAN CHE EMU GBR SWE USA Currency 0.962*** 0.644*** 0.605*** 0.630*** 0.694*** 0.576*** (0.006) (0.025) (0.013) (0.021) (0.057) (0.011) Obs. 13,762 14,770 12,650 14,227 14,894 7,530 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

71 Including: Structured Finance, Sovranationals, Local Gov. CAN CHE EMU GBR SWE USA Currency 0.922*** 0.663*** 0.598*** 0.540*** 0.800*** 0.630*** (0.010) (0.010) (0.007) (0.014) (0.013) (0.007) Obs. 153, , , , , ,488 # of Firms 24,286 24,286 24,286 24,286 24,286 24,286 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

72 Including: All Bonds CAN CHE EMU GBR SWE USA Currency 0.898*** 0.658*** 0.590*** 0.542*** 0.788*** 0.531*** (0.008) (0.009) (0.007) (0.014) (0.013) (0.027) Obs. 206, , , , , ,776 # of Firms 24,962 24,962 24,962 24,962 24,962 24,962 R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

73 Including: Finance CAN CHE EMU GBR SWE USA Currency 0.912*** 0.670*** 0.594*** 0.477*** 0.833*** 0.624*** (0.016) (0.012) (0.012) (0.023) (0.015) (0.012) Obs. 10,836 10,836 10,836 10,836 10,836 10,836 # of Firms R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

74 Including: Non-Financial Corporate CAN CHE EMU GBR SWE USA Currency 0.936*** 0.659*** 0.581*** 0.588*** 0.706*** 0.614*** (0.008) (0.024) (0.010) (0.021) (0.046) (0.009) Obs. 15,030 15,030 15,030 15,030 15,030 15,030 # of Firms R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

75 Including: Foreign Financial CAN CHE EMU GBR SWE USA Currency 0.917*** 0.649*** 0.626*** 0.454*** 0.756*** 0.578*** (0.022) (0.012) (0.013) (0.027) (0.040) (0.015) Obs. 10,132 10,327 8,556 9,921 10,441 7,392 # of Firms R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

76 Including: Foreign Non-Financial Corporate CAN CHE EMU GBR SWE USA Currency 0.962*** 0.644*** 0.605*** 0.630*** 0.694*** 0.576*** (0.006) (0.025) (0.013) (0.021) (0.057) (0.011) Obs. 13,767 14,775 12,654 14,231 14,899 7,534 # of Firms R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

77 Including: Residency CAN CHE EMU GBR SWE USA Currency 0.899*** 0.660*** 0.580*** 0.529*** 0.802*** 0.602*** (0.014) (0.011) (0.008) (0.016) (0.014) (0.009) Residency 0.056*** 0.027*** *** (0.012) (0.009) (0.012) (0.012) (0.021) (0.013) Obs. 34,457 34,457 34,457 34,457 34,457 34,457 # of Firms R Firm FE Yes Yes Yes Yes Yes Yes Controls Yes Yes Yes Yes Yes Yes Estimates for year 2015, weighted least squares Back

78 Residency and Nationality CAN CHE EMU GBR SWE USA Currency 0.857*** 0.657*** 0.624*** 0.510*** 0.742*** 0.526*** Nationality 0.037* 0.006** 0.027** 0.018*** *** Residency 0.023** *** 0.016*** *** 0.035** N x R N x C 0.072* *** 0.182*** R x C 0.094*** 0.291*** *** *** N x R x C *** *** *** Obs. 34,457 34,457 34,457 34,457 34,457 34,457 R-squared Back

79 How Does Morningstar Obtain Their Data? Surveys required to obtain research coverage by Morningstar Reporting is voluntary, but clears various quality checks: Cross-referenced with publicly available realized returns Cross-referenced with regulated positions disclosures Informally checked by clients with positions Fund managers often request omission of sensitive positions. After quarter, Morningstar back-fills the data. By end of sample, roughly three-quarters (weighted by value) of funds report monthly. Nearly all report quarterly. Back

80 Outward Bond Portfolio Shares Match TIC ALB SRB BRA CAN URY ARG BRB THA CHL ISR VGB IND SGP GBR EMU DNK COL NGA LBN NOR MUS JPN KOR QAT PER HUN MEX MAR AUS GTMJEY BHS ISL UKR TUR BGR ECU HKG RUS IDN PAK SWE DZA ZAF CYM PHL MYS HRV BMU CHE POL ZWE CHN JAM ROU KAZ HND PAN ABW TUN TWN NZL NIC EGY KOR QAT MYS GBR URY MNG BOL BLZ JOR VGB PAK MCO ABW TUR DNK BRB POL BGR CAN RUS AUS EMU ARG ALB PER FJI HND GAB IRQ NZL JPN KAZ IND HRV OMN MAR NGA SRB ZAF PHL JAM IDN CHE GRD PAN SEN BLR SGP UKR ISL GTM BHS CHN TUN EGY SWE HKG MUS CHL ECU SYC MEX HUN BHR NOR LBN THAJEY GHA COL BMU GEO BRA CYM ISR MNE ROU TWN ROU IND BOL QAT URY UKR AZE JOR IRQ NOR MNE LVA SGP CHN BRA BRB JEY ECU BHS PRY MNG SYC CAN BDI POL PHL ISR HUN GAB PAN ARG ABW MCO GGY LBN DNK GTM TWN KEN BGR BLR NGA AUS SEN OMN FJI JPN PAK VGB THA HKG MAR BMU GBR TUR EMU ARM COL JAM MEX RWA TUN KOR CHL CYM MUS PER RUS GRD SRB NZL HRV ZAF EGY BHR NAM ZMB GEO KAZ GHA CHE SWE MYS HND ALB ISL IDN BLZ Morningstar TIC

81 Inward Bond Portfolio Shares Don t Match TIC Morningstar CAN CAN DNK CHE CHE LIE LVANOR ANDSWE NZL GGY JEY BHS ZAF IDN ISR CHL MYSKOR VGB DNK THASGP THAHKG JEYSGP IND AUS AUS MEX NOR HKG RUS BMU TWN HKG CHE TWN GBR GBR GBR CYM CYM CHN JPNCHN EMU CHN EMU TIC EMU

82 US Inward Bond Portfolio Shares Don t Match TIC Morningstar CAN CAN DNK CHE AND LIE LVA NZL JEY ZAF BHS CHLRUS MYS VGB DNK JEY AUS AUS MEX NOR SGPRUS BRA TWN CHE GGY IDN ISR SWE THA INDKOR HKGBMU HKG TWN GBR GBR GBR EMU EMU TIC EMU Note: Excludes Cayman Islands, China, and Japan Back