Gravity and Culture in Foreign Portfolio Investment

47 Pages Posted: 31 Aug 2011

See all articles by Raj Aggarwal

Raj Aggarwal

University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland

Colm Kearney

Monash University - Monash Business School

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; University of Economics Ho Chi Minh City

Date Written: September 1, 2012

Abstract

Using panel regression estimates from the IMF’s CPIS survey of foreign debt and equity portfolios across 174 originating and 50 destination countries from 2001 to 2007, we clarify the role of culture and extend the set of cultural variables that have been investigated in gravity models of foreign portfolio investment (FPI). Incorporating Hofstede’s cultural dimensions of individualism, masculinity, power distance and uncertainty avoidance, we show how cultural traits in both originating and destination countries, as well as the cultural distances that separate them, interact with geographic distance and other gravity variables to determine global FPI patterns. We find hitherto unreported effects and show that while gravity always deters FPI, aspects of culture and cultural distance can offset this by supporting FPI.

Keywords: FPI, home bias, culture, gravity models

JEL Classification: F21, F23 , F37 , G12, G15

Suggested Citation

Aggarwal, Raj and Kearney, Colm and Lucey, Brian M., Gravity and Culture in Foreign Portfolio Investment (September 1, 2012). Available at SSRN: https://ssrn.com/abstract=1014361 or http://dx.doi.org/10.2139/ssrn.1014361

Raj Aggarwal

University of Akron ( email )

Akron, OH 44325-4803
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Colm Kearney

Monash University - Monash Business School ( email )

Sir John Monash Drive
Caulfield
Melbourne, Victoria 3168
Australia
+353399031021 (Phone)

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

University of Economics Ho Chi Minh City ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

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