The Determinants of International Equity Holdings: Information vs. Culture
Abstract
I examine whether the effect of physical distance on the geography of international portfolio investments undergoes an informational or a cultural channel. Using two measures to disentangle the effects of the physical distance, namely the cultural distance proposed by Kogut and Singh (1988), and a new measure of the information distance, I analyze a panel dataset showing 24 source countries’ bilateral equity holdings in various destinations as of the end-2006. Regressions suggest that the effect of the geography on international portfolio investments is likely to be a phenomenon linked to information asymmetries rather than one reflecting the impact of the cultural proximity between countries.
Domains
Economics and Finance
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