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Determinants of sector of holders international equity holdings

Faruk Balli (), Hatice Balli (), Syed Basher (), Amira Karimova and Aihua Wang

International Review of Economics & Finance, 2019, vol. 63, issue C, 329-338

Abstract: The study explores a new disaggregated data-set on bilateral gross equity flows among 33 high-income countries over the 2001–2014 period. The disaggregation is available over equities for various different economic sectors of the economy, namely; monetary authorities, banks, insurance, non-financial institutions, households and government. Employing a typical financial gravity model via GMM methodology, we have found persistency effect on bilateral cross-border equity investments. In particular, the decisions of financial sector holders indicate strong persistency compared to non-financial companies and households, where they have the incline in changing the markets they invest. Unlike the previous literature, bilateral trade and foreign asset trading linkage is not significant, for the financial sector of holders; i.e; banks, insurance and monetary authorities. This finding indicates that financial sector holder's decision on market selection is immune to the bilateral trade linkage between countries, implying their motivation scattering the portfolio as much as possible. The return and diversification motives reveal the differences across sector holders' investment decisions. The investors-almost all sector holders-generally have strong diversification motives, which is mostly consistent for the sector holders.

Keywords: Gravity model; Bilateral cross-border equity holdings; Endogeneity bias; Financial integration; EU markets (search for similar items in EconPapers)
JEL-codes: C36 F36 G11 G15 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.iref.2019.03.004

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