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Investor Protection and Equity-Holdings: An Explanation of Two Puzzles?

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  • Giannetti, Mariassunta
  • Koskinen, Yrjö

Abstract

We develop a model where wealthy investors have an incentive to become controlling shareholders because they can earn additional benefits by expropriating outside shareholders. As a consequence, in countries where minority investor rights are poorly protected, both domestic and foreign portfolio investors have a disincentive to hold stocks. The model implies that the differences in stock market participation rates across countries and the pervasiveness of home equity bias depend on the degree of investor protection. We provide international evidence on stock market participation rates, and holdings of domestic and foreign stocks consistent with the predictions of the model.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4017.

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Date of creation: Aug 2003
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Handle: RePEc:cpr:ceprdp:4017

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Related research

Keywords: home equity bias; investor protection; limited participation; portfolio choice; private benefits of control;

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Cited by:
  1. Alberto Naudon & Matías Tapia, 2004. "Ignorance, Fixed Costs, and the Stock Market Participation Puzzle," Econometric Society 2004 Latin American Meetings, Econometric Society 252, Econometric Society.
  2. Giannetti, Mariassunta & Simonov, Andrei, 2003. "Which Investors Fear Expropriation? Evidence from Investors' Stock Picking," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3843, C.E.P.R. Discussion Papers.
  3. Johann Scharler, 2004. "International Risk Sharing and Investor Protection: Some Evidence from the EU-15," Economics Bulletin, AccessEcon, vol. 6(23), pages 1-13.
  4. Herz, Christian & Neunert, Daniela & Will, Sebastian & Wolf, Niko J. & Zwick, Tobias, 2012. "Portfolioallokation: Einbezug verschiedener Assetklassen," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-01, University of Bayreuth, Chair of Finance and Banking.

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