Investor Protection and Equity-Holdings: An Explanation of Two Puzzles?
AbstractWe 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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4017.
Date of creation: Aug 2003
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Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-RMG-2003-10-05 (Risk Management)
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- Giannetti, Mariassunta & Simonov, Andrei, 2003. "Which Investors Fear Expropriation? Evidence from Investors' Stock Picking," CEPR Discussion Papers 3843, C.E.P.R. Discussion Papers.
- Alberto Naudon & Matías Tapia & Felipe Zurita, 2004.
"Ignorance, Fixed Costs, and the Stock-Market Participation Puzzle,"
Documentos de Trabajo
262, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Alberto Naudon & MatÃas Tapia, 2004. "Ignorance, Fixed Costs, and the Stock Market Participation Puzzle," Econometric Society 2004 Latin American Meetings 252, Econometric Society.
- Johann Scharler, 2004. "International Risk Sharing and Investor Protection: Some Evidence from the EU-15," Economics Bulletin, AccessEcon, vol. 6(23), pages 1-13.
- 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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