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The Determinants of Cross-Border Equity Flows: The Geography of=20 Information

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Author Info
Richard Portes (London Business School, DELTA, CEPR & NBER)
=20 H=E9l=E8ne Rey (London School of Economics & CEPR)

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Abstract

We apply a new approach to a new panel data set on bilateral=20 gross cross-border equity flows between 14 countries, 1989- 96. The model=20 integrates elements of the finance literature on portfolio composition and= =20 the international macroeconomics and asset trade literature. Gross asset=20 flows depend on market size in both source and destination country as well= =20 as trading costs, in which both information and the transaction technology= =20 play a role. Distance proxies some information costs, and other variables=20 explicitly represent information transmission, an information asymmetry=20 between domestic and foreign investors, and the efficiency of transactions.= =20 The remarkably good results have strong implications for theories of asset= =20 trade. We find that the geography of information is the main determinant of= =20 the pattern of international transactions, while there is little support in= =20 our data for diversification and =91return-chasing=92 motives for= transactions.

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Paper provided by EconWPA in its series International Finance with number 0012002.

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Length: 47 pages
Date of creation: 09 Feb 2001
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Handle: RePEc:wpa:wuwpif:0012002

Note: 47 pages, Acrobat .pdf
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Find related papers by JEL classification:
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ongena, S. & Degreyse, H.A., 2003. "Distance, lending relationships, and competition," Discussion Paper 123, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
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