IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v17y2016icp62-65.html
   My bibliography  Save this article

Newton meets Van Leeuwenhoek: Identifying international investors’ common currency preferences

Author

Listed:
  • Boermans, Martijn A.
  • Vermeulen, Robert

Abstract

Using a novel security-by-security dataset, this paper distinguishes investor preferences for euro-denominated debt securities from investor preferences for debt securities issued by euro area residents. We estimate a gravity model and show that investors have a preference for securities in their home country and countries close to their home country. Furthermore, investors have a strong preference for holding debt securities denominated in euros. Whether a security is issued by a euro area resident or a non-euro area resident is of secondary importance. These results are important for the literature on international investment positions for identifying investors’ currency preferences.

Suggested Citation

  • Boermans, Martijn A. & Vermeulen, Robert, 2016. "Newton meets Van Leeuwenhoek: Identifying international investors’ common currency preferences," Finance Research Letters, Elsevier, vol. 17(C), pages 62-65.
    • Handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:62-65
    DOI: 10.1016/j.frl.2016.01.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612316000064
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2016.01.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    2. Stefan Avdjiev & Michael Chui & Hyun Song Shin, 2014. "Non-financial corporations from emerging market economies and capital flows," BIS Quarterly Review, Bank for International Settlements, December.
    3. Philip R. Lane & Jay C. Shambaugh, 2010. "Financial Exchange Rates and International Currency Exposures," American Economic Review, American Economic Association, vol. 100(1), pages 518-540, March.
    4. Fidora, Michael & Fratzscher, Marcel & Thimann, Christian, 2007. "Home bias in global bond and equity markets: The role of real exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 26(4), pages 631-655, June.
    5. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
    6. Bénétrix, Agustin S. & Lane, Philip R. & Shambaugh, Jay C., 2015. "International currency exposures, valuation effects and the global financial crisis," Journal of International Economics, Elsevier, vol. 96(S1), pages 98-109.
    7. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
    8. De Santis, Robert A. & Gérard, Bruno, 2009. "International portfolio reallocation: Diversification benefits and European monetary union," European Economic Review, Elsevier, vol. 53(8), pages 1010-1027, November.
    9. Philip R. Lane & Gian Maria Milesi-Ferretti, 2008. "International Investment Patterns," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 538-549, August.
    10. Sandro C. Andrade & Vidhi Chhaochharia, 2010. "Information Immobility and Foreign Portfolio Investment," Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2429-2463, June.
    11. Balli, Faruk & Basher, Syed Abul & Ozer-Balli, Hatice, 2010. "From home bias to Euro bias: Disentangling the effects of monetary union on the European financial markets," Journal of Economics and Business, Elsevier, vol. 62(5), pages 347-366, September.
    12. Lieven De Moor & Rosanne Vanp�e, 2013. "What drives international equity and bond holdings? An empirical study," Applied Financial Economics, Taylor & Francis Journals, vol. 23(13), pages 1067-1082, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matteo Maggiori & Brent Neiman & Jesse Schreger, 2020. "International Currencies and Capital Allocation," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2019-2066.
    2. Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2018. "Currency matters: Analyzing international bond portfolios," Journal of International Economics, Elsevier, vol. 114(C), pages 376-388.
    3. de Haan, Leo & Vermeulen, Robert, 2021. "Sovereign debt ratings and the country composition of cross-border holdings of euro area sovereign debt," Journal of International Money and Finance, Elsevier, vol. 119(C).
    4. de Haan, Leo & Vermeulen, Robert, 2021. "Sovereign debt ratings and the country composition of cross-border holdings of euro area sovereign debt," Journal of International Money and Finance, Elsevier, vol. 119(C).
    5. Vahagn Galstyan & Adnan Velic, 2018. "International Investment Patterns: the Case of German Sectors," Open Economies Review, Springer, vol. 29(3), pages 665-685, July.
    6. Boermans, Martijn A. & Burger, John D., 2023. "Fickle emerging market flows, stable euros, and the dollar risk factor," Journal of International Economics, Elsevier, vol. 142(C).
    7. Martijn A. Boermans & Robert Vermeulen, 2020. "International investment positions revisited: Investor heterogeneity and individual security characteristics," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 466-496, May.
    8. Carvalho, Daniel, 2022. "The portfolio holdings of euro area investors: Looking through investment funds," Journal of International Money and Finance, Elsevier, vol. 120(C).
    9. Ogrokhina, Olena & Rodriguez, Cesar M., 2019. "The effect of inflation targeting and financial openness on currency composition of sovereign international debt," Journal of International Money and Finance, Elsevier, vol. 97(C), pages 1-18.
    10. Martijn Boermans & Robert Vermeulen, 2018. "Quantitative easing and preferred habitat investors in the euro area bond market," DNB Working Papers 586, Netherlands Central Bank, Research Department.
    11. Martijn Boermans, 2022. "A literature review of securities holdings statistics research and a practitioner’s guide," Working Papers 757, DNB.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "History, gravity and international finance," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 104-129.
    2. Martijn A. Boermans & Robert Vermeulen, 2020. "International investment positions revisited: Investor heterogeneity and individual security characteristics," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 466-496, May.
    3. Carvalho, Daniel, 2022. "The portfolio holdings of euro area investors: Looking through investment funds," Journal of International Money and Finance, Elsevier, vol. 120(C).
    4. Balli, Faruk & Balli, Hatice Ozer & Basher, Syed Abul & Karimova, Amira & Wang, Aihua, 2019. "Determinants of sector of holders international equity holdings," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 329-338.
    5. Vermeulen, Robert, 2013. "International diversification during the financial crisis: A blessing for equity investors?," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 104-123.
    6. Galstyan, Vahagn & Mehigan, Caroline & Mercado, Rogelio, 2020. "The currency composition of international portfolio assets," Journal of International Money and Finance, Elsevier, vol. 103(C).
    7. MacDonald, Margaux, 2017. "International capital market frictions and spillovers from quantitative easing," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 135-156.
    8. Beck, Roland & Georgiadis, Georgios & Gräb, Johannes, 2016. "The geography of the great rebalancing in euro area bond markets during the sovereign debt crisis," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 449-460.
    9. Vermeulen, Robert, 2013. "International diversification during the financial crisis: A blessing for equity investors?," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 104-123.
    10. Antonio Coppola & Matteo Maggiori & Brent Neiman & Jesse Schreger, 2021. "Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(3), pages 1499-1556.
    11. Bénétrix, Agustín S. & Juvenal, Luciana & Schmitz, Martin & Gautam, Deepali, 2020. "Cross-border currency exposures: new evidence based on an enhanced and updated dataset," Working Paper Series 2417, European Central Bank.
    12. Habib, Maurizio Michael & Floreani, Vincent Arthur, 2015. "Financial exposure to the euro area before and after the crisis: home bias and institutions at home," Working Paper Series 1799, European Central Bank.
    13. Kim, Kyungkeun & Lee, Dongwon, 2020. "Equity market integration and portfolio rebalancing," Journal of Banking & Finance, Elsevier, vol. 113(C).
    14. Fabian J. Baier & Paul J. J. Welfens, 2019. "The UK’s banking FDI flows and Total British FDI: a dynamic BREXIT analysis," International Economics and Economic Policy, Springer, vol. 16(1), pages 193-213, March.
    15. Gajewski, Krzysztof & Olszewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech & Tchorek, Grzegorz & Zięba, Jolanta, 2012. "Integracja finansowa w Europie po wprowadzeniu euro. Przegląd literatury [Financial integration in Europe after the introduction of the euro. A literature overview]," MPRA Paper 42482, University Library of Munich, Germany.
    16. Cerutti, Eugenio & Casanova, Catherine & Pradhan, Swapan-Kumar, 2023. "Banking across borders: Are Chinese banks different?," Journal of Banking & Finance, Elsevier, vol. 154(C).
    17. Balli, Faruk & Basher, Syed Abul & Rana, Faisal, 2014. "The determinants of the volatility of returns on cross-border asset holdings," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 1-23.
    18. Erdogan, Burcu, 2015. "The Role of Uncertainty Avoidance in Foreign Investment Bias," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113181, Verein für Socialpolitik / German Economic Association.
    19. Khalil, Makram, 2019. "Cross-border portfolio diversification under trade linkages," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 114-128.
    20. Vahagn Galstyan & Adnan Velic, 2018. "International Investment Patterns: the Case of German Sectors," Open Economies Review, Springer, vol. 29(3), pages 665-685, July.

    More about this item

    Keywords

    International portfolio choice; Gravity model; Euro currency; Securities holdings statistics;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • 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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:62-65. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.