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European portfolio investment outflows: the impact of the European Monetary Union

Author

Listed:
  • Fernando Seabra

    (Universidade Federal de Santa Catarina)

  • Tatiana Santos

Abstract

The objective of this paper is to analyse the main determinants of bilateral foreign portfolio investment (FPI) from European countries to host countries, including European Union countries, other developed countries and emerging markets. An FPI model based on an extended gravity equation is estimated from a panel data set over the period 2001-2006. Among the explanatory variables are interest rate differentials, the expected exchange rate uncertainty – estimated by an autoregressive conditional heteroskedasticity (ARCH) model – a dummy variable for the European Monetary Union (EMU) and gravity variables. The results give support for the asymmetric information hypothesis since the EMU variable and geographical and institutional distances are estimated to be significant, indicating a regional “home bias” effect for European portfolio holdings.

Suggested Citation

  • Fernando Seabra & Tatiana Santos, 2010. "European portfolio investment outflows: the impact of the European Monetary Union," Brazilian Review of Finance, Brazilian Society of Finance, vol. 8(4), pages 377-382.
    • Handle: RePEc:brf:journl:v:8:y:2010:i:4:p:377-382
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