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

Barbara Berkel

No 4061, MEA discussion paper series from Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy

Abstract: 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.

JEL-codes: F21 F36 G11 G15 (search for similar items in EconPapers)
Date: 2004-11-11
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Citations: View citations in EconPapers (16)

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Journal Article: Institutional Determinants of International Equity Portfolios - A Country-Level Analysis (2007)
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