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The Determinants of Cross-Border Equity Flows: The Geography of Information

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  • Richard Portes and H�l�ne Rey.

Abstract

We apply a new approach to a new panel data set on bilateral gross cross-border equity flows between 14 countries, 1989-96. The model integrates elements of the finance literature on portfolio composition and the international macroeconomics and asset trade literature. Gross asset flows depend on market size in both source and destination country as well as trading costs, in which both information and the transaction technology play a role. Distance proxies some information costs, and other variables explicitly represent information transmission, an information asymmetry between domestic and foreign investors, and the efficiency of transactions. The remarkably good results have strong implications for theories of asset trade. We find that the geography of information is the main determinant of the pattern of international transactions, while there is little support in our data for diversification and 'return-chasing' motives for transactions.

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Paper provided by University of California at Berkeley in its series Center for International and Development Economics Research (CIDER) Working Papers with number C00-111.

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Date of creation: 01 Jul 2000
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Handle: RePEc:ucb:calbcd:c00-111

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Citations

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Cited by:
  1. Kant, Chander, 2005. "Capital mobility among advanced countries," Journal of Policy Modeling, Elsevier, vol. 27(9), pages 1067-1081, December.
  2. Rui Albuquerque & Gregory Bauer & Martin Schneider, 2004. "Characterizing Asymmetric Information in International Equity Markets," International Finance 0405005, EconWPA.
  3. Brennan, Michael J. & Cao, H. Henry & Strong, Norman & Xu, Xinzhong, 2003. "The Dynamics of International Equity Market Expectations," University of California at Los Angeles, Anderson Graduate School of Management qt88t154b5, Anderson Graduate School of Management, UCLA.
  4. Mody, Ashoka & Razin, Assaf & Sadka, Efraim, 2002. "The Role of Information in Driving FDI: Theory and Evidence," CEPR Discussion Papers 3619, C.E.P.R. Discussion Papers.
  5. Philip Lane, 2001. "Do international investment income flows smooth income?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(4), pages 714-736, December.
  6. Rui Albuquerque & Gregory H. Bauer & Martin Schneider, 2004. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," Working Papers 04-42, Bank of Canada.
  7. Jean-Michel Pasteels & Michaël Pajot & Lionel Fontagné, 2002. "Potentiels de commerce entre économies hétérogènes : un petit mode d’emploi des modèles de gravité," Économie et Prévision, Programme National Persée, vol. 152(1), pages 115-139.
  8. Wei-Kang WONG, 2001. "How Good Are Embodied And Disembodied Idea Flows In Bridging Income Gaps And Idea Gaps?," Departmental Working Papers wp0102, National University of Singapore, Department of Economics.
  9. Rosati, Simonetta & Secola, Stefania, 2006. "Explaining cross-border large-value payment flows: Evidence from TARGET and EURO1 data," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1753-1782, June.
  10. Daugherty, Mary & Georgieva, Dobrina, 2011. "Foreign cultures, Sarbanes-Oxley Act and cross-delisting," Journal of Multinational Financial Management, Elsevier, vol. 21(4), pages 208-223, October.
  11. Shujing Li & Hamid Faruqee & Isabel K. Yan, 2004. "The Determinants of International Portfolio Holdings and Home Bias," IMF Working Papers 04/34, International Monetary Fund.
  12. Rosati, Simonetta & Secola, Stefania, 2005. "Explaining cross-border large-value payment flows: evidence from TARGET and EURO 1 data," Working Paper Series 0443, European Central Bank.
  13. Wong, Wei-Kang, 2004. "How good are trade and telephone call traffic in bridging income gaps and TFP gaps?," Journal of International Economics, Elsevier, vol. 64(2), pages 441-463, December.
  14. Hahm, Joon-Ho & Shin, Kwanho, 2006. "Complementarity among International Asset Holdings: Do Banks Have a Special Role?," MPRA Paper 705, University Library of Munich, Germany.
  15. Alicia Garcia-Herrero & Philip Wooldridge, 2007. "Global and regional financial integration: progress in emerging markets," BIS Quarterly Review, Bank for International Settlements, September.
  16. Gopinath, Gita, 2003. "Lending Booms, Sharp Reversals and Real Exchange Rate Dynamics," Scholarly Articles 11988005, Harvard University Department of Economics.
  17. Assaf Razin & Ashoka Mody & Efraim Sadka, 2003. "The Role of Information in Driving FDI Flows," IMF Working Papers 03/148, International Monetary Fund.
  18. 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.

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