科学研究

The corporate basis measures the price differences between bonds issued in dollars and foreign currencies by the same corporate entity. In this paper, we propose a novel method to decompose the corporate basis into three components: credit spread differential, convenience yield differential, and deviation from covered interest rate parity. With this decomposition, we document several stylized facts, and in particular, the substitution effect between safe and risky dollar assets. We provide further evidences on the substitution effect using the structural VAR analysis, which shows that a negative shock to financial intermediaries’ balance sheets causes a tightening of credit spread differential, a demand shift toward safe assets, and an appreciation of the dollar. We also find consistent holdings-level evidences using foreign investors’ aggregated holdings of safe and risky dollar assets. Lastly, we find that the substitution effect also shows great empirical plausibility for bonds denominated in the largest non-USD currencies—Euro and British Pounds—but is not highly relevant to other currencies in our sample. Our results highlight the important role of the top funding currencies, especially the U.S. dollar, in the global financial markets.