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

Assessing the potential for further foreign demand for U.S. assets: Has financing U.S. current account deficits made foreign investors overweight in U.S. securities?

  • Carol C. Bertaut
Registered author(s):

    Since 2001, foreign investors have acquired roughly $5 trillion in U.S. securities--more than doubling their holdings of U.S. equities and bonds--as both official and private inflows have financed record U.S. current account deficits. Although the rapid growth of foreign holdings of U.S. securities raises concerns that foreign investors may have become too heavily weighted in U.S. assets, foreign investors have not in fact materially changed the relative allocations between U.S. and other foreign securities in their portfolios in recent years. Based on data from the most recent comprehensive surveys of foreign portfolio investment, the 2006 IMF Coordinated Portfolio Investment Surveys (CPIS), most foreign investors remain relatively more underweight in both U.S. equities and bonds than they do in foreign securities in general. Although the underweight position suggests that there remains potential for foreign investors to continue to acquire U.S. securities, econometric evidence indicates that the underweight position itself reflects a preference by foreign investors for securities of countries with which they have strong economic or cultural ties, consistent with recent research that suggests "location" or "information" preferences in both domestic and international portfolios. As securities markets abroad continue to deepen, such factors are likely to continue to attract investment from "nearby" markets, especially from European investors.

    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/2008/950/default.htm
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/ifdp/2008/950/ifdp950.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 950.

    as
    in new window

    Length:
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:fip:fedgif:950
    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. 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.
    2. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers 691, Board of Governors of the Federal Reserve System (U.S.).
    3. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
    4. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    5. Philippe Martin & Helene Rey, 2000. "Financial super-markets: size matters for asset trade," LSE Research Online Documents on Economics 20197, London School of Economics and Political Science, LSE Library.
    6. Marco Pagano & Ailsa A. Röell & Josef Zechner, 2002. "The Geography of Equity Listing: Why Do Companies List Abroad?," Journal of Finance, American Finance Association, vol. 57(6), pages 2651-2694, December.
    7. Dahlquist, Magnus & Robertsson, Goran, 2001. "Direct foreign ownership, institutional investors, and firm characteristics," Journal of Financial Economics, Elsevier, vol. 59(3), pages 413-440, March.
    8. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    9. G. Andrew Karolyi & Rene M. Stulz, 2002. "Are Financial Assets Priced Locally or Globally?," NBER Working Papers 8994, National Bureau of Economic Research, Inc.
    10. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
    11. Dahlquist, Magnus & Pinkowitz, Lee & Stulz, René M. & Williamson, Rohan, 2002. "Corporate Governance and the Home Bias," SIFR Research Report Series 11, Institute for Financial Research.
    12. Kristin J. Forbes, 2008. "Why do foreigners invest in the United States?," Working Paper Series 2008-27, Federal Reserve Bank of San Francisco.
    13. Edison, Hali J. & Warnock, Francis E., 2008. "Cross-border listings, capital controls, and equity flows to emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 1013-1027, October.
    14. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2005. "A Global Perspective on External Positions," CEPR Discussion Papers 5234, C.E.P.R. Discussion Papers.
    15. Berkel Barbara, 2007. "Institutional Determinants of International Equity Portfolios - A Country-Level Analysis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-33, October.
    16. 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.
    17. 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.
    18. 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.
    19. 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.
    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:950. 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.