The Determinants of International Investment and Attention Allocation: Using Internet Search Query Data

Abstract:     
Few studies have successfully examined the empirical impact of limited information processing on real economic variables. The challenge relies, of course, on the difficulty of measuring an economic agent's degree of attention/inattention paid to different types of information. This paper overcomes such challenge exploring a unique dataset containing the "search/click-through" behavior of internet search engine users. We analyzes the effect of attention allocation on international investment decisions by combining U.S. data on portfolio holdings of foreign securities with the attention allocated by 657,426 America Online customers in search queries towards these countries. We find evidence that: (i) agents tend to search more information about countries where they hold more assets, and (ii) agents tend to invest more in countries where they process more information.

Number of Pages in PDF File: 29

Keywords: Foreign Asset Holdings, Attention Allocation, Rational Inattention, Internet Search Data

JEL Classification: F30, D82, G11

working papers series