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Institutional Determinants of International Equity Portfolios - A Country-Level Analysis

  • Barbara Berkel

    ()

    (Munich Center for the Economics of Aging (MEA))

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    Despite large potential gains, international equity investment is less diversified across countries than predicted by the international version of the traditional capital asset pricing model (ICAPM). This paper provides empirical evidence on the impact of capital market frictions on international equity portfolios using data on bilateral equity holdings. Two important findings are reported: First, besides a home bias in equities, a ‘friendship bias’ can be observed for some country pairs. Second, indirect barriers such as the degree of financial market development and especially information asymmetries have strong explanatory power, whereas direct barriers such as capital flow restrictions have no impact on the portfolio share of foreign equities.

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    Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 04061.

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    Date of creation: 11 Nov 2004
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    Handle: RePEc:mea:meawpa:04061
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