Financial Education, Investor Protection and International Portfolio Diversification

41 Pages Posted: 1 Jun 2012

See all articles by Maela Giofré

Maela Giofré

University of Turin - Department of Economics and Statistics; CeRP-CCA; Netspar

Date Written: March 15, 2012

Abstract

This paper investigates the tension between regulation and financial education in explaining one of the major puzzles in international finance, that is the lack of international diversification. We show that both dimensions are relevant: higher investor's financial education fosters international investment and stronger minority investor protection legislation attracts inward investment. More interestingly, these factors appear to be substitute in enhancing investor's portfolio diversification: the role of financial education is particularly pronounced where information problems and monitoring costs are likely to be more severe, that is in countries where protection of minority shareholders' rights is weaker. We interpret this evidence as supportive of the conjecture that the main channel through which financial education contributes to international diversification consists of loosening the informational constraints binding foreign investors.

Keywords: Financial education, Home bias, International Portfolio Investments, Investor Protection Legislation

JEL Classification: G11, G15, G30

Suggested Citation

Giofré, Maela, Financial Education, Investor Protection and International Portfolio Diversification (March 15, 2012). Available at SSRN: https://ssrn.com/abstract=2072154 or http://dx.doi.org/10.2139/ssrn.2072154

Maela Giofré (Contact Author)

University of Turin - Department of Economics and Statistics ( email )

Lungo Dora Siena 100/A
Torino, Turin - Piedmont 10153
Italy

CeRP-CCA ( email )

Via Real Collegio 30
Moncalieri (TO), Turin 10024
Italy

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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