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The Determinants of Cross-Border Equity Flows: The Geography of=20 Information

  • Richard Portes

    (London Business School, DELTA, CEPR & NBER)

  • =20 H=E9l=E8ne Rey

    (London School of Economics & CEPR)

We apply a new approach to a new panel data set on bilateral=20 gross cross-border equity flows between 14 countries, 1989- 96. The model=20 integrates elements of the finance literature on portfolio composition and= =20 the international macroeconomics and asset trade literature. Gross asset=20 flows depend on market size in both source and destination country as well= =20 as trading costs, in which both information and the transaction technology= =20 play a role. Distance proxies some information costs, and other variables=20 explicitly represent information transmission, an information asymmetry=20 between domestic and foreign investors, and the efficiency of transactions.= =20 The remarkably good results have strong implications for theories of asset= =20 trade. We find that the geography of information is the main determinant of= =20 the pattern of international transactions, while there is little support in= =20 our data for diversification and =91return-chasing=92 motives for= transactions.

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Paper provided by EconWPA in its series International Finance with number 0012002.

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Length: 47 pages
Date of creation: 09 Feb 2001
Date of revision:
Handle: RePEc:wpa:wuwpif:0012002
Note: 47 pages, Acrobat .pdf
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