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The International Equity Holdings of Euro Area Investors

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  • Philip Lane
  • Gian Maria Milesi-Ferretti

Abstract

We provide a systematic analysis of bilateral, source and host factors driving portfolio equity investment by euro-area countries, using newly-released data on international equity holdings at the end of 2001. We find that bilateral equity holdings are strongly linked to bilateral trade in goods and services and are also associated with proxies for informational proximity. We further document that there exists a significant “euro-area bias”, with euro-area countries investing in other euro-area countries over and above the amount predicted by underlying fundamentals.

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Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp104.

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Date of creation: 15 Dec 2005
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Handle: RePEc:iis:dispap:iiisdp104

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Keywords: International portfolio equity investment; international trade; gravity.;

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References

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  1. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
  2. Andrew K. Rose & Mark M. Spiegel, 2002. "A Gravity Model of Sovereign Lending: Trade, Default and Credit," NBER Working Papers 9285, National Bureau of Economic Research, Inc.
  3. Maurice Obstfeld & Kenneth Rogoff & Ben Bernanke & Kenneth Rogoff, . "The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?," Working Paper 32326, Harvard University OpenScholar.
  4. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "International Investment Patterns," The Institute for International Integration Studies Discussion Paper Series iiisdp024, IIIS.
  5. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, . "What Works in Securities Laws?," Working Paper 19491, Harvard University OpenScholar.
  6. Martin, Philippe & Rey, H., 2000. "Financial integration and asset returns," European Economic Review, Elsevier, vol. 44(7), pages 1327-1350, June.
  7. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  8. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  9. Gerard Caprio, Jr. and Patrick Honohan, 2008. "Banking Crises," The Institute for International Integration Studies Discussion Paper Series iiisdp242, IIIS.
  10. Lee Pinkowitz & Rene M. Stulz & Rohan Williamson, 2001. "Corporate Governance and the Home Bias," NBER Working Papers 8680, National Bureau of Economic Research, Inc.
  11. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
  12. Steven J. Davis & Jeremy Nalewaik & Paul Willen, 2000. "On the Gains to International Trade in Risky Financial Assets," NBER Working Papers 7796, National Bureau of Economic Research, Inc.
  13. Mann, Catherine L. & Meade, Ellen E., 2002. "Home bias, transactions costs, and prospects for the Euro: A more detailed analysis," Research Notes 6, Deutsche Bank Research.
  14. Carol C. Bertaut & Linda S. Kole, 2004. "What makes investors over or underweight? explaining international appetites for foreign equities," International Finance Discussion Papers 819, Board of Governors of the Federal Reserve System (U.S.).
  15. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
  16. Catherine L. Mann & Ellen E. Meade, 2002. "Home bias, transactions costs, and prospects for the Euro: a more detailed analysis," LSE Research Online Documents on Economics 20076, London School of Economics and Political Science, LSE Library.
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Citations

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Cited by:
  1. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS.
  2. Agustín S. Bénétrix and Sébastien Wälti, 2008. "Indicators of regional financial integration," The Institute for International Integration Studies Discussion Paper Series iiisdp243, IIIS.
  3. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.
  4. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
  5. Philip R. Lane, 2008. "EMU and Financial Market Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp248, IIIS.
  6. International Monetary Fund, 2010. "European Financial Linkages," IMF Working Papers 10/295, International Monetary Fund.
  7. Faruk Balli & Rosmy Louis & Mohammad Osman, 2011. "The patterns of cross-border portfolio investments in the GCC region: do institutional quality and the number of expatriates play a role?," Journal of Economics and Finance, Springer, vol. 35(4), pages 434-455, October.
  8. Balli Faruk & Louis Rosmy J & Osman Mohamed A, 2009. "International Portfolio Inflows to GCC Markets: Are There Any General Patterns?," Review of Middle East Economics and Finance, De Gruyter, vol. 5(2), pages 45-65, September.
  9. Lane, Philip R, 2005. "Global Bond Portfolios and EMU," MPRA Paper 654, University Library of Munich, Germany, revised 15 Feb 2006.
  10. Yohei Okawa & Eric van Wincoop, 2010. "Gravity in International Finance," Working Papers 072010, Hong Kong Institute for Monetary Research.
  11. Fidora, Michael & Fratzscher, Marcel & Thimann, Christian, 2006. "Home bias in global bond and equity markets: the role of real exchange rate volatility," Working Paper Series 0685, European Central Bank.
  12. Francis E. Warnock, 2006. "How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?," IMF Working Papers 06/170, International Monetary Fund.
  13. Philip R. Lane, 2006. "The Real Effects of European Monetary Union," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 47-66, Fall.

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