IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

What makes investors over or underweight? explaining international appetites for foreign equities

  • Carol C. Bertaut
  • Linda S. Kole
Registered author(s):

    Using data from the IMF Coordinated Portfolio Investment Surveys conducted in 2001, we analyze the determinants of 31 countries' international equity holdings. We show that investors in all countries underweight U.S. equities in their portfolios, many by more than they underweight foreign equities in general. Such behavior is surprising given the common perception of the United States as a desirable investment destination due to its well-developed legal and regulatory environment. Instead we find that investors in some countries are overweight in equities from other countries with which they have close regional or political ties. Such ties, along with distance, trade, issuance of U.S. ADRs or cross-listing on the London Stock exchange, market concentration, and estimated betas, help explain patterns of diversification. However, even when all these variables are included, we find significant fixed effects for most countries, suggesting that a considerable amount of cross-country variation in investment positions and in home bias remains to be explained. Our work confirms previous findings and extends results most completely documented for the United States to other major investor countries. But it also suggests caution should be used when interpreting results derived from studies of one or a few countries.

    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.federalreserve.gov/pubs/ifdp/2004/819/default.htm
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/ifdp/2004/819/ifdp819.pdf
    Download Restriction: no

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 819.

    as
    in new window

    Length:
    Date of creation: 2004
    Date of revision:
    Handle: RePEc:fip:fedgif:819
    Contact details of provider: Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
    Web page: http://www.federalreserve.gov/

    More information through EDIRC

    Order Information: Web: http://www.federalreserve.gov/pubs/ifdp/order.htm

    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. Dahlquist, Magnus & Pinkowitz, Lee & Stulz, René M. & Williamson, Rohan, 2003. "Corporate Governance and the Home Bias," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 87-110, March.
    2. Richard Portes & Hélène Rey, 2001. "The Determinants of Cross-Border Equity Flows," DELTA Working Papers 2001-08, DELTA (Ecole normale supérieure).
    3. Shujing Li & Hamid Faruqee & Isabel K. Yan, 2004. "The Determinants of International Portfolio Holdings and Home Bias," IMF Working Papers 04/34, International Monetary Fund.
    4. Philippe Martin & H=E9l=E8ne Rey=, 2001. "Financial Super-Markets: Size Matters for Asset Trade," International Finance 0012001, EconWPA.
    5. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    6. Pagano, Marco & Röell, Ailsa A & Zechner, Josef, 2001. "The Geography of Equity Listing: Why Do Companies List Abroad?," CEPR Discussion Papers 2681, C.E.P.R. Discussion Papers.
    7. Philip R. Lane & G.M. Milesi-Ferretti, 2003. "International Financial Integration," Trinity Economics Papers 20031, Trinity College Dublin, Department of Economics.
    8. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
    9. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "International Investment Patterns," The Institute for International Integration Studies Discussion Paper Series iiisdp024, IIIS.
    10. Catherine L. Mann & Ellen E. Meade, 2002. "Home Bias, Transactions Costs, and Prospects for the Euro: A More Detailed Analysis," CEP Discussion Papers dp0537, Centre for Economic Performance, LSE.
    11. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
    12. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2003. "The Impact of Corporate Governance on Investment Returns in Developed and Developing Countries," Economic Journal, Royal Economic Society, vol. 113(491), pages F511-F539, November.
    13. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    14. Aggarwal, Reena & Klapper, Leora & Wysocki, Peter D., 2005. "Portfolio preferences of foreign institutional investors," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 2919-2946, December.
    15. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
    16. Ren� M Stultz, 1984. "Pricing Capital Assets in an International Setting: An Introduction," Journal of International Business Studies, Palgrave Macmillan, vol. 15(3), pages 55-73, September.
    17. 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.
    18. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
    19. G. Andrew Karolyi & Rene M. Stulz, 2002. "Are Financial Assets Priced Locally or Globally?," NBER Working Papers 8994, National Bureau of Economic Research, Inc.
    20. Hali J. Edison & Francis E. Warnock, 2004. "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 691-704, August.
    21. Scott Weisbenner & Zoran Ivkovich, 2003. "Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments," NBER Working Papers 9685, National Bureau of Economic Research, Inc.
    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:fip:fedgif:819. 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: (Kris Vajs)

    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.