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Information and Capital Flows Revisited: The Internet as a Determinant of Transactions in Financial Assets

Author

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  • Choi, Changkyu

    (Myongji University)

  • Rhee , Dong-Eun

    (Korea Institute for International Economic Policy)

  • Oh , Yonghyup

    (Korea Institute for International Economic Policy)

Abstract

This paper investigates the determinants of international transactions in financial assets empirically. We extend the gravity model in Portes et al. (2000) by introducing an internet variable. Using cross-country panel data on the portfolio flows between the US and other countries from 1990 to 2008, we found that the Internet turns out to mitigate the information asymmetries and thus increases cross-border portfolio flows between countries.

Suggested Citation

  • Choi, Changkyu & Rhee , Dong-Eun & Oh , Yonghyup, 2010. "Information and Capital Flows Revisited: The Internet as a Determinant of Transactions in Financial Assets," Working Papers 10-10, Korea Institute for International Economic Policy.
    • Handle: RePEc:ris:kiepwp:2010_010
    DOI: 10.2139/ssrn.2489832
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    1. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
    2. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    3. Choi, Changkyu, 2010. "The effect of the Internet on service trade," Economics Letters, Elsevier, vol. 109(2), pages 102-104, November.
    4. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    5. 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.
    6. Choi, Changkyu, 2003. "Does the Internet stimulate inward foreign direct investment?," Journal of Policy Modeling, Elsevier, vol. 25(4), pages 319-326, June.
    7. Choi, Changkyu & Hoon Yi, Myung, 2009. "The effect of the Internet on economic growth: Evidence from cross-country panel data," Economics Letters, Elsevier, vol. 105(1), pages 39-41, October.
    8. Freund, Caroline L. & Weinhold, Diana, 2004. "The effect of the Internet on international trade," Journal of International Economics, Elsevier, vol. 62(1), pages 171-189, January.
    9. Yi, Myung Hoon & Choi, Changkyu, 2005. "The effect of the Internet on inflation: Panel data evidence," Journal of Policy Modeling, Elsevier, vol. 27(7), pages 885-889, October.
    10. Choi, James J. & Laibson, David & Metrick, Andrew, 2002. "How does the Internet affect trading? Evidence from investor behavior in 401(k) plans," Journal of Financial Economics, Elsevier, vol. 64(3), pages 397-421, June.
    11. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    12. Bogan, Vicki, 2008. "Stock Market Participation and the Internet," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(1), pages 191-211, March.
    13. Caroline Freund & Diana Weinhold, 2002. "The Internet and International Trade in Services," American Economic Review, American Economic Association, vol. 92(2), pages 236-240, May.
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    Cited by:

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    More about this item

    Keywords

    Capital Flows; Financial Assets; The Internet; Portfolio Flows; Gravity Equation;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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