Cross-border diversification in bank asset portfolios

Claudia Buch, John Driscoll and Charlotte Ostergaard

No 429, Working Paper Series from European Central Bank

Abstract: Taking the mean-variance portfolio model as a benchmark, we compute the optimally diversified portfolio for banks located in France, Germany, the U.K., and the U.S. under different assumptions about currency hedging. We compare these optimal portfolios to the actual cross-border assets of banks from 1995-1999 and try to explain the deviations. We find that banks over-invest domestically to a considerable extent and that cross-border diversification entails considerable gain. Banks underweight countries which are culturally less similar or have capital controls in place. Capital controls have a strong impact on the degree of underinvestment whereas less political risk increases the degree of over-investment. JEL Classification: G21, G11, E44, F40

Keywords: international banking; international integration; portfolio diversification (search for similar items in EconPapers)
Date: 2005-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp429.pdf (application/pdf)

Related works:
Journal Article: Cross‐Border Diversification in Bank Asset Portfolios (2010)
Working Paper: Cross-Border Diversification in Bank Asset Portfolios (2004)
Working Paper: Cross-border diversification in bank asset portfolios (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2005429

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().