International capital flows at the security level – evidence from the ECB’s asset purchase programme

Tuesday, 23 October 2018
ECMI Working Papers
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European Capital Markets Institute, Working Paper No. 7

Katharina Bergant is final year PhD Candidate and a Grattan Scholar at Trinity College Dublin, Michael Fidora is Principal Economist at the European Central Bank and Martin Schmitz is Principal Economist-Statistician at the European Central Bank. The paper has received the Best Paper Award at the ECMI Annual Conference 2018, held in Brussels on 10 October.


The paper analyses euro area investors’ portfolio rebalancing during the ECB’s Asset Purchase Programme (APP) at the security level. Based on net transactions of domestic and foreign securities, the authors observe euro area sectors’ capital flows into individual securities, cleaned from valuation effects. Their empirical analysis – which accounts for security-level characteristics – shows that euro area investors (in particular investment funds and households) actively rebalanced away from securities targeted under the Public Sector Purchase Programme (PSPP) and other euro-denominated debt securities, towards foreign debt instruments, including ‘closest substitutes’, i.e. certain sovereign debt securities issued by non-euro area advanced countries. This rebalancing was particularly strong during the first six quarters of the programme. The analysis also reveals marked differences across sectors as well as country groups within the euro area, suggesting that quantitative easing has induced heterogeneous portfolio shifts. 

Keywords: International Investment Patterns, Capital Flows, Sovereign Debt, Investor Heterogeneity, Quantitative Easing

JEL Classification: F21, F42, E52, G15


ECMI Working Papers offer views and insights into developments affecting capital markets in Europe. The purpose of this series is to promote the circulation of work in progress produced by specialists associated with the European Capital Markets Institute, which is managed and staffed by CEPS,  or presented at ECMI Seminars and Conferences by external contributors on topics of special interest to ECMI. Unless otherwise indicated, the views expressed are attributable only to the authors and not to any institution with which they are associated, and nor do they necessarily represent the views of the ECMI.