Host religiosity, religious proximity, and cross-border portfolio allocation

This study examines how religion shapes cross-border portfolio allocation through two cultural dimensions: host-country religiosity and religious proximity. Using bilateral equity positions for 45 home and 46 host markets from 2001 to 2022, we find that more religious host societies attract larger foreign equity holdings, suggesting that investors interpret religious environments as signals of trust, ethical behavior, and reduced opportunism. Similarity in religious composition further increases allocations by lowering cultural distance and enhancing the interpretability of institutional conditions. The analysis also uncovers asymmetric interactions with political stability: host-country religiosity substituctes for weak governance in high-risk environments, whereas religious proximity complements strong institutions in politically stable markets. By shifting attention from home-country cultural traits to host-country informal institutions, and by distinguishing normative religious environments from identity-based similarity, the study provides evidence on how deep cultural structures shape international portfolio choices and the institutional forces driving global capital flows.