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

Gravity in International Finance

  • Yohei Okawa

    (University of Virginia)

  • Eric van Wincoop

    (University of Virginia, National Bureau of Economic Research and Hong Kong Institute for Monetary Research)

The past decade has witnessed an explosion of papers estimating gravity equations for cross-border financial holdings. The aim of the paper is to develop a theoretical foundation for the empirical gravity literature applied to finance. The gravity specification is closely analogous to that developed for goods trade, even though it is based on a very different type of theory. We show how the theory can be used to estimate international financial frictions and conduct comparative statics analysis with respect to changes in these frictions. We use a dataset for cross-border equity holdings among 24 industrialized countries to illustrate these results.

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.hkimr.org/uploads/publication/103/ub_full_0_2_240_wp-no-07_2010.pdf
Download Restriction: no

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 072010.

as
in new window

Length: 61 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:hkm:wpaper:072010
Contact details of provider: Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
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. 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.
  2. Cedric Tille & Eric van Wincoop, 2007. "International Capital Flows," Working Papers 122007, Hong Kong Institute for Monetary Research.
  3. P Martin & H Rey, 2000. "Financial Super-Markets: Size Matters for Asset Trade," CEP Discussion Papers dp0450, Centre for Economic Performance, LSE.
  4. van Wincoop, Eric & Warnock, Francis E., 2010. "Can trade costs in goods explain home bias in assets?," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1108-1123, October.
  5. Nicolas Coeurdacier, 2006. "Do trade costs in goods market lead to home bias in equities?," 2006 Meeting Papers 111, Society for Economic Dynamics.
  6. Dennis Novy, 2012. "Gravity Redux: Measuring International Trade Costs with Panel Data," CEP Discussion Papers dp1114, Centre for Economic Performance, LSE.
  7. Christian Daude & Marcel Fratzscher, 2007. "The pecking order of cross-border investment," CGFS Papers chapters, in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 53-89 Bank for International Settlements.
  8. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  9. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
  10. Bae, Kee-Hong & Stulz, René M. & Tan, Hongping, 2008. "Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts," Journal of Financial Economics, Elsevier, vol. 88(3), pages 581-606, June.
  11. Alicia Garcia-Herrero & Philip Woolbridge & Doo Yong Yang, 2009. "Why don\'t Asians invest in Asia:The determinants of cross-border portfolio holdings," Working Papers 0908, BBVA Bank, Economic Research Department.
  12. Nicolas Coeurdacier & Philippe Martin, 2009. "The geography of asset trade and the euro: Insiders and outsiders," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR National Bureau of Economic Research, Inc.
  13. Kristin J. Forbes, 2008. "Why do Foreigners Invest in the United States?," NBER Working Papers 13908, National Bureau of Economic Research, Inc.
  14. Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
  15. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  16. Bong-Chan Kho & René M Stulz & Francis E Warnock, 2006. "Financial globalisation, governance and the evolution of the home bias," BIS Working Papers 220, Bank for International Settlements.
  17. Pipat Luengnaruemitchai & Barry J. Eichengreen, 2006. "Bond Markets As Conduits for Capital Flows; How Does Asia Compare?," IMF Working Papers 06/238, International Monetary Fund.
  18. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  19. Claudia M. Buch, 2000. "Information or Regulation: What Is Driving the International Activities of Commercial Banks?," Kiel Working Papers 1011, Kiel Institute for the World Economy.
  20. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  21. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  22. Philip R. Lane, 2006. "Global Bond Portfolios and EMU," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
  23. Stijn Van Nieuwerburgh & Laura Veldkamp, 2007. "Information Immobility and the Home Bias Puzzle," NBER Working Papers 13366, National Bureau of Economic Research, Inc.
  24. 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.
  25. Dimitrios Christelis & Dimitris Georgarakos, 2008. "Investing at Home and Abroad: Different Costs, Different People?," CSEF Working Papers 188, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 10 Jan 2013.
  26. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
  27. Tille, Cedric & van Wincoop, Eric, 2010. "A new perspective on "the new rule"of the current account," Journal of International Economics, Elsevier, vol. 80(1), pages 89-99, January.
  28. Kim, Soyoung & Lee, Jong-Wha & Shin, Kwanho, 2006. "Regional and Global Financial Integration in East Asia," MPRA Paper 695, University Library of Munich, Germany.
  29. Hahm, Joon-Ho & Shin, Kwanho, 2009. "Complementarity among international asset holdings," Journal of the Japanese and International Economies, Elsevier, vol. 23(1), pages 37-55, March.
  30. Coeurdacier, Nicolas & Guibaud, Stéphane, 2006. "International Portfolio Diversification Is Better Than You Think," ESSEC Working Papers DR 06013, ESSEC Research Center, ESSEC Business School.
  31. Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-80.
  32. Carol C. Bertaut & Linda S. Kole, 2004. "What makes investors over or underweight? explaining international appetites for foreign equities," International Finance Discussion Papers 819, Board of Governors of the Federal Reserve System (U.S.).
  33. 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.
  34. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g708n2m4m is not listed on IDEAS
  35. Pierre-Olivier Gourinchas & Nicolas Coeurdacier, 2008. "When Bonds Matter: Home Bias in Goods and Assets," 2008 Meeting Papers 342, Society for Economic Dynamics.
  36. Faruk, Balli, 2006. "New Patterns in International Portfolio Allocation and Income Smoothing," MPRA Paper 10121, University Library of Munich, Germany, revised 14 Aug 2008.
  37. 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.).
  38. Balli Faruk & Louis Rosmy J & Osman Mohamed A, 2009. "International Portfolio Inflows to GCC Markets: Are There Any General Patterns?," Review of Middle East Economics and Finance, De Gruyter, vol. 5(2), pages 45-65, September.
  39. 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.
  40. Claudia M. Buch, 2000. "Are Banks Different? Evidence from International Data," Kiel Working Papers 1012, Kiel Institute for the World Economy.
  41. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.
  42. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
  43. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "International Investment Patterns," The Institute for International Integration Studies Discussion Paper Series iiisdp024, IIIS.
  44. 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.
  45. Lee, Jong-Wha, 2008. "Patterns and Determinants of Cross-border Financial Asset Holdings in East Asia," Working Papers on Regional Economic Integration 13, Asian Development Bank.
  46. De Santis, Robert A. & Gérard, Bruno, 2009. "International portfolio reallocation: Diversification benefits and European monetary union," European Economic Review, Elsevier, vol. 53(8), pages 1010-1027, November.
  47. Gelos, Gaston & Wei, Shang-Jin, 2004. "Transparency and International Portfolio Holdings," CEPR Discussion Papers 4476, C.E.P.R. Discussion Papers.
  48. Narcissa Balta & Juan Delgado, 2009. "Home Bias and Market Integration in the EU," CESifo Economic Studies, CESifo, vol. 55(1), pages 110-144, March.
  49. Akito Matsumoto & Charles Engel, 2009. "The International Diversification Puzzle when Goods Prices Are Sticky; It's Really About Exchange-Rate Hedging, not Equity Portfolios," IMF Working Papers 09/12, International Monetary Fund.
  50. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  51. Swati Ghosh & Holger Wolf, 2000. "Is There a Curse of Location? Spatial Determinants of Capital Flows to Emerging Markets," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 137-156 National Bureau of Economic Research, Inc.
  52. Michael B. Devereux & Alan Sutherland, 2008. "Country portfolios in open economy macro models," Globalization and Monetary Policy Institute Working Paper 09, Federal Reserve Bank of Dallas.
  53. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
  54. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
  55. Nicolas Coeurdacier & Stéphane Guibaud, 2005. "International equity holdings and stock returns correlations: Does diversification matter at all for portfolio choice?," PSE Working Papers halshs-00590777, HAL.
  56. Isaac Ehrlich & William A. Hamlen Jr. & Yong Yin, 2008. "Asset Management, Human Capital, and the Market for Risky Assets," Journal of Human Capital, University of Chicago Press, vol. 2(3), pages 217-262.
  57. Kim, Woochan & Sung, Taeyoon & Wei, Shang-Jin, 2011. "Does corporate governance risk at home affect investment choices abroad?," Journal of International Economics, Elsevier, vol. 85(1), pages 25-41, September.
  58. Véronique Salins & Agnès Bénassy-Quéré, 2006. "Institutions and Bilateral Asset Holdings," Working Papers 2006-19, CEPII research center.
  59. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g708n2m4m is not listed on IDEAS
  60. John F. Helliwell, 1995. "Do National Borders Matter for Quebec's Trade?," NBER Working Papers 5215, National Bureau of Economic Research, Inc.
  61. Mario J Crucini & Gregory D Hess, 1999. "International and Intranational Risk Sharing," CESifo Working Paper Series 227, CESifo Group Munich.
  62. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g708pipbp is not listed on IDEAS
  63. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "The International Equity Holdings of Euro Area Investors," The Institute for International Integration Studies Discussion Paper Series iiisdp104, IIIS.
  64. Woochan Kim & Taeyoon Sung & Shang-Jin Wei, 2008. "How Does Corporate Governance Risk at Home Affect Investment Choices Abroad?," NBER Working Papers 13721, National Bureau of Economic Research, Inc.
  65. 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.
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:hkm:wpaper:072010. 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: (HKIMR)

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.