A BEJM Topics article.

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.

Submitted: November 9, 2005 · Accepted: November 15, 2006 · Published: October 2, 2007

Recommended Citation

Berkel, Barbara (2007) "Institutional Determinants of International Equity Portfolios - A Country-Level Analysis," The B.E. Journal of Macroeconomics: Vol. 7 : Iss. 1 (Topics), Article 34.
Available at: http://www.bepress.com/bejm/vol7/iss1/art34