DP19709 New Evidence on the US Excess Return on Foreign Portfolios
We provide new estimates of the return on US external claims and liabilities using confidential, high-quality, security-level data. The excess return is positive on average, since claims are relatively more tilted toward higher-return equities. The excess return is large and positive in normal times and large and negative during global crises, reflecting the global insurance role of the US external balance sheet. With an increased frequency of global crises, the excess return has declined over the recent period. When controlling for issuer’s nationality, US investors have larger exposure to equity issued by Asia-headquartered corporations than reported in aggregate statistics. Equity portfolios are concentrated in ’superstar’ firms, but for US liabilities foreign holdings are less concentrated than the overall market.
