The Determinants of International Equity Holdings: Information Versus Culture
59 Pages Posted: 16 May 2011 Last revised: 16 Jan 2020
Date Written: March 1, 2011
I examine whether the effect of physical distance on the geography of international portfolio investments undergoes an informational or a cultural channel. Using two measures to disentangle the effects of the physical distance, namely the cultural distance proposed by Kogut and Singh (1988), and a new measure of the information distance, I analyze a panel dataset showing 24 source countries’ bilateral equity holdings in various destinations as of the end-2006. Regressions suggest that the effect of the geography on international portfolio investments is likely to be a phenomenon linked to information asymmetries rather than one reflecting the impact of the cultural proximity between countries.
Keywords: information distance, cultural distance, gravity model, home bias
JEL Classification: F36, G14, G15
Suggested Citation: Suggested Citation