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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. Dahlquist, Magnus & Pinkowitz, Lee & Stulz, René M. & Williamson, Rohan, 2003. "Corporate Governance and the Home Bias," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 87-110, March.
  2. Gerard Caprio & Patrick Honohan, 2008. "Banking Crises," Center for Development Economics 2008-09, Department of Economics, Williams College.
  3. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  4. 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.
  5. Martin, Philippe & Rey, Hélène, 2000. "Financial Super-Markets: Size Matters for Asset Trade," Center for International and Development Economics Research, Working Paper Series qt0dr2z6p9, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  6. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "What Works in Securities Law?," NBER Working Papers 9882, National Bureau of Economic Research, Inc.
  7. Martin, Philippe & Rey, Hélène, 1999. "Financial Integration and Asset Returns," CEPR Discussion Papers 2282, C.E.P.R. Discussion Papers.
  8. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  9. 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.
  10. Andrew K. Rose & Mark M. Spiegel, 2004. "A Gravity Model of Sovereign Lending: Trade, Default, and Credit," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 50-63, June.
  11. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "International Investment Patterns," CEPR Discussion Papers 4499, C.E.P.R. Discussion Papers.
  12. 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.
  13. Catherine L. Mann & Ellen E. Meade, 2002. "Home Bias, Transactions Costs, and Prospects for the Euro: A More Detailed Analysis," CEP Discussion Papers dp0537, Centre for Economic Performance, LSE.
  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. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  16. 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.
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Citations

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Cited by:
  1. 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.
  2. Francis E. Warnock, 2006. "How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?," IMF Working Papers 06/170, International Monetary Fund.
  3. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
  4. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.
  5. Balli, Faruk & Louis, Rosmy J. & Osman, Muhammed, 2009. "The Patterns of cross-border portfolio investments in the GCC region: do institutional quality and the number of expatriates play a role?," MPRA Paper 19966, University Library of Munich, Germany, revised 01 Nov 2010.
  6. Philip R. Lane, 2006. "Global Bond Portfolios and EMU," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
  7. Philip R. Lane, 2008. "EMU and Financial Market Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp248, IIIS.
  8. Yohei Okawa & Eric van Wincoop, 2010. "Gravity in International Finance," Working Papers 072010, Hong Kong Institute for Monetary Research.
  9. Agustín S. Bénétrix and Sébastien Wälti, 2008. "Indicators of regional financial integration," The Institute for International Integration Studies Discussion Paper Series iiisdp243, IIIS.
  10. 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.
  11. Philip R. Lane, 2008. "The Macroeconomics of Financial Integration: A European Perspective," The Institute for International Integration Studies Discussion Paper Series iiisdp265, IIIS.
  12. International Monetary Fund, 2010. "European Financial Linkages," IMF Working Papers 10/295, International Monetary Fund.
  13. 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.

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