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International Equity Transactions and U.S. Portfolio Choice

In: The Internationalization of Equity Markets

  • Linda L. Tesar
  • Ingrid M. Werner

This paper studies the cross-border transactions in equity by investors in Canada, Germany,Japan, the U.K. and the U.S. We find that investors from different countries make very different decisions about the allocation of their portfolio across markets. In contradiction to the notion that high variable transactions costs hinder international diversification, we find that the volume of gross equity flows vastly exceeds net equity flows and the turnover rate on foreign equity investments by some investors even exceeds domestic turnover rates. We also reject the hypothesis that U.S. investors follow the standard CAPM in allocating their global equity portfolio.

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This chapter was published in:
  • Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Books, National Bureau of Economic Research, Inc, number fran94-1, July.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6274.
    Handle: RePEc:nbr:nberch:6274
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
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    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.:

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    1. Charles Engel & Anthony Rodrigues, 1990. "Tests of mean-variance efficiency of international equity markets," Research Working Paper 90-05, Federal Reserve Bank of Kansas City.
    2. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-26, May.
    3. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    4. Wheatley, Simon, 1988. "Some tests of international equity integration," Journal of Financial Economics, Elsevier, vol. 21(2), pages 177-212, September.
    5. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
    6. Lois E. Stekler & Edwin M. Truman, 1992. "The adequacy of the data on U.S. international financial transactions: a Federal Reserve perspective," International Finance Discussion Papers 430, Board of Governors of the Federal Reserve System (U.S.).
    7. Engel, Charles & Rodrigues, Anthony P, 1989. "Tests of International CAPM with Time-Varying Covariances," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(2), pages 119-38, April-Jun.
    8. Ferson, Wayne E & Harvey, Campbell R, 1993. "The Risk and Predictability of International Equity Returns," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 527-66.
    9. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
    10. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
    11. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
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