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Institutional Determinants of International Equity Portfolios - A Country-Level Analysis

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  • Berkel Barbara

    (MEA, Mannheim University)

Abstract

Despite large potential gains, international equity investment is less diversified across countries than predicted by the international version of the traditional capital asset pricing model (ICAPM). This paper provides empirical evidence on the impact of capital market frictions on international equity portfolios using data on bilateral equity holdings. Two important findings are reported: First, besides a home bias in equities, a 'friendship bias' can be observed for some country pairs. Second, indirect barriers such as the degree of financial market development and especially information asymmetries have strong explanatory power, whereas direct barriers such as capital flow restrictions have no impact.

Suggested Citation

  • Berkel Barbara, 2007. "Institutional Determinants of International Equity Portfolios - A Country-Level Analysis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-33, October.
    • Handle: RePEc:bpj:bejmac:v:7:y:2007:i:1:n:34
    DOI: 10.2202/1935-1690.1388
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    More about this item

    Keywords

    international portfolio diversification; capital market frictions; financial market development; information asymmetries; ICAPM; bilateral equity holdings;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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