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<p>Recognizing the profound influence of geopolitical risks and world uncertainty on financial investment behaviour, this study uses a comprehensive approach to assess the impact of rising geopolitical risk on sovereign debt holdings for a panel of 24 OECD economies for the period of Q1 2004 to Q4 2023. To do so, we employ ordinary least squares (OLS) fixed effects and quantile regression techniques within a panel data framework to capture the nuanced effects on both domestic and foreign entities holdings. We find that escalating geopolitical tension decreases government debt holdings among domestic entities, notably domestic Banks, while foreign investors increase their ownership. This phenomenon is more pronounced for high proportion levels of debt in investor’s portfolios. Further, our results allow us to conclude that while domestic economic agents display clearer risk aversion, foreign economic agents have a more risk-taking behaviour in what concerns the financial investment made on government debt.</p>

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Echoes of instability: how geopolitical risks shape government debt holdings

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2025年5月12日

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  • António Afonso,
  • José Alves,
  • Sofia Monteiro

摘要

Recognizing the profound influence of geopolitical risks and world uncertainty on financial investment behaviour, this study uses a comprehensive approach to assess the impact of rising geopolitical risk on sovereign debt holdings for a panel of 24 OECD economies for the period of Q1 2004 to Q4 2023. To do so, we employ ordinary least squares (OLS) fixed effects and quantile regression techniques within a panel data framework to capture the nuanced effects on both domestic and foreign entities holdings. We find that escalating geopolitical tension decreases government debt holdings among domestic entities, notably domestic Banks, while foreign investors increase their ownership. This phenomenon is more pronounced for high proportion levels of debt in investor’s portfolios. Further, our results allow us to conclude that while domestic economic agents display clearer risk aversion, foreign economic agents have a more risk-taking behaviour in what concerns the financial investment made on government debt.