TY  - JOUR
AU  - Curcuru,Stephanie E.
AU  - Dvorak,Tomas
AU  - Warnock,Francis E.
TI  - Decomposing the U.S. External Returns Differential
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15077
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15077
L1  - http://www.nber.org/papers/w15077.pdf
N1  - Author contact info:
Stephanie E. Curcuru
Board of Governors
of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington DC 20551
E-Mail: stephanie.e.curcuru@frb.gov

Tomas Dvorak
Union College
Department of Economics
Social Sciences Bldg 215
Schenectady, NY 12308
Tel: 518-388-8016
E-Mail: dvorakt@union.edu

Francis E. Warnock
Darden Business School
University of Virginia
Charlottesville, VA 22906-6550
Tel: 434/924-6076
Fax: 434/243-8945
E-Mail: warnockf@darden.virginia.edu
AB  - 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.
ER  -