IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Geography of Asset Trade and the Euro: Insiders and Outsiders

Listed author(s):

This paper analyzes the determinants of cross-border asset trade on cross-country data and a Swedish data set. We focus our analysis on the impact of the euro for the determinants of bond trade, equity and banking assets. With the help of a theoretical model, we attempt to disentangle the different effects that the euro may have had on asset holdings for both euro zone countries and countries outside of the euro zone such as Sweden. We find evidence that the euro has implied 1) a unilateral financial liberalization which makes it cheaper for all countries to buy euro zone assets. For bonds and equity holdings, this would translate into approximately 14% and 17% decrease in transaction costs. Using Swedish data, we find that this effect of the euro is larger for flows than for stocks. 2) a preferential financial liberalization which on top of the previous effect has decreased transaction costs inside the euro zone by approximately 17% and 10% for bonds and equity respectively. 3) a diversion effect due to the fact that lower transaction costs inside the euro zone have led euro countries to purchase less equity from outside the euro zone. Our empirical analysis also suggests that the elasticity of substitution between bonds inside the euro zone is higher than between bonds denominated in different currencies. We illustrate this effect for transaction costs generated by the difference in the legal system.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.essec.fr/faculty/showDeclFileRes.do?declId=6730&key=__workpaper__
Download Restriction: no

Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 06020.

as
in new window

Length: 33 pages
Date of creation: Dec 2006
Handle: RePEc:ebg:essewp:dr-06020
Contact details of provider: Postal:
ESSEC Research Center, BP 105, 95021 Cergy, France

Web page: http://www.essec.edu/
Email:


More information through EDIRC

References listed on IDEAS
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.:

as
in new window

  1. Andrew K. Rose & Mark M. Spiegel, 2002. "A Gravity Model of Sovereign Lending: Trade, Default and Credit," NBER Working Papers 9285, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  4. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
  5. Baldwin, Richard E., 2006. "The euro’s trade effects," Working Paper Series 0594, European Central Bank.
  6. Head, Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers 3455, C.E.P.R. Discussion Papers.
  7. Loderer, Claudio & Cooney, John W & van Drunen, Leonard D, 1991. " The Price Elasticity of Demand for Common Stock," Journal of Finance, American Finance Association, vol. 46(2), pages 621-651, June.
  8. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, "undated". "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  9. Coeurdacier, Nicolas, 2008. "Do Trade Costs in Goods Market Lead to Home Bias in Equities?," CEPR Discussion Papers 6991, C.E.P.R. Discussion Papers.
  10. Lane, Philip R., 2005. "Global bond portfolios and EMU," Working Paper Series 0553, European Central Bank.
  11. Jeffrey Wurgler & Ekaterina Zhuravskaya, 2000. "Does Arbitrage Flatten Demand Curves for Stocks?," Yale School of Management Working Papers ysm152, Yale School of Management, revised 01 Nov 2001.
  12. Andrew K. Rose, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," Working Papers 042002, Hong Kong Institute for Monetary Research.
  13. Richard Portes & Helene Rey, 2000. "The determinants of cross-border equity flows," LSE Research Online Documents on Economics 20203, London School of Economics and Political Science, LSE Library.
  14. 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.
  15. Martin, Philippe & Rey, Hélène, 2005. "Globalization and Emerging Markets: With or Without Crash?," CEPR Discussion Papers 5165, C.E.P.R. Discussion Papers.
  16. Aviat, Antonin & Coeurdacier, Nicolas, 2006. "The Geography of Trade in Goods and Asset Holdings," ESSEC Working Papers DR 06012, ESSEC Research Center, ESSEC Business School.
  17. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Firms in the European Union," Post-Print hal-01020551, HAL.
  18. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 29-42.
  19. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  20. Lane, P, 1999. "International Investment Positions: A Cross-Sectional Analysis," Trinity Economics Papers 995, Trinity College Dublin, Department of Economics.
  21. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  22. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  23. Flam, Harry & Nordström, Håkan, 2006. "Trade Volume Effects of the Euro: Aggregate and Sector Estimates," Seminar Papers 746, Stockholm University, Institute for International Economic Studies.
  24. De Santis, Roberto A. & Gérard, Bruno, 2006. "Financial integration, international portfolio choice and the European Monetary Union," Working Paper Series 0626, European Central Bank.
  25. Cappiello, Lorenzo & Gérard, Bruno & Kadareja, Arjan & Manganelli, Simone, 2006. "Financial integration of new EU Member States," Working Paper Series 0683, European Central Bank.
  26. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, "undated". "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  27. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
  28. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  29. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate of the Effect of Common Currencies on Trade and Income," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 437-466.
  30. Philippe Martin & Helene Rey, 2000. "Financial integration and asset returns," LSE Research Online Documents on Economics 20201, London School of Economics and Political Science, LSE Library.
  31. Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
  32. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-969, July.
  33. Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ebg:essewp:dr-06020. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sophie Magnanou)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.