Do international portfolio investors follow firms' foreign investment decisions?

Roberto De Santis () and Paul Ehling

No 815, Working Paper Series from European Central Bank

Abstract: We analyse the inter-linkages between foreign direct investment (FDI) and foreign portfolio investment (FPI) between Germany and the major economies. First, we show that Tobin's q helps explaining the variation of the growth rate of the stock of FDI. Second, we show that foreign and the home stock market returns explain the variation of the growth rate of the stock of FPI. Most importantly, we find that information about foreign fundamentals is revealed via direct investment. In other words, FDI transactions measured by fitted growth rates of the stock of FDI help explaining current growth rates of the stock of FPI. To our knowledge this observation is the first unambiguous evidence that international portfolio investors follow firms' expected foreign investment decisions. JEL Classification: F21, F23, G11, G15

Keywords: foreign direct investment; foreign portfolio investment; investor heterogeneity and information spillovers; Tobin's q (search for similar items in EconPapers)
Date: 2007-09
Note: 185689
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2007815

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