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Do international portfolio investors follow firms' foreign investment decisions?

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  • De Santis, Roberto A.
  • Ehling, Paul

Abstract

We analyse the inter-linkages between foreign direct investment (FDI) and foreign portfolio investment (FPI) between Germany and the major economies. First, we show that Tobin's q helps explaining the variation of the growth rate of the stock of FDI. Second, we show that foreign and the home stock market returns explain the variation of the growth rate of the stock of FPI. Most importantly, we find that information about foreign fundamentals is revealed via direct investment. In other words, FDI transactions measured by fitted growth rates of the stock of FDI help explaining current growth rates of the stock of FPI. To our knowledge this observation is the first unambiguous evidence that international portfolio investors follow firms' expected foreign investment decisions. JEL Classification: F21, F23, G11, G15

Suggested Citation

  • De Santis, Roberto A. & Ehling, Paul, 2007. "Do international portfolio investors follow firms' foreign investment decisions?," Working Paper Series 815, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2007815
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nicolas Coeurdacier & Roberto A. De Santis & Antonin Aviat, 2009. "Cross-border mergers and acquisitions and European integration," Economic Policy, CEPR;CES;MSH, vol. 24, pages 55-106, January.
    2. De Santis, Roberto A. & Coeurdacier, Nicolas & Aviat, Antonin, 2009. "Cross-Border Mergers and acquisitions: Financial and institutional forces," Working Paper Series 1018, European Central Bank.
    3. Nicolas Coeurdacier & Roberto A. De Santis & Antonin Aviat, 2009. "Cross-border mergers and acquisitions and European integration," Post-Print hal-01022660, HAL.
    4. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g70aj72cl is not listed on IDEAS
    5. Michael, Bryane, 2015. "Foreign Under-Investment in US Securities and the Role of Relational Capital," EconStor Preprints 109961, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    foreign direct investment; foreign portfolio investment; investor heterogeneity and information spillovers; Tobin's q;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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