Japanese and U.S. Cross-Border Common Stock Investments

18 Pages Posted: 14 Jul 2000

See all articles by Kenneth R. French

Kenneth R. French

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: March 1991

Abstract

At the end of 1989, Japanese investors held just over 1% of the U.S. stock market, while U.S. investors held less than 1% of the Tokyo market. This pattern of very limited cross-holding has persisted for nearly two decades, despite the diversification gains from cross-border investment. None of the standard explanations for limited international equity holding, such as capital controls on Japanese investors or limits on the international exposure of institutional portfolios, appears satisfactory. To justify these patterns, investors in both the United States and Japan must believe, inconsistently, that expected returns are substantially higher in their own market than in foreign markets.

JEL Classification: 52,31

Suggested Citation

French, Kenneth R. and Poterba, James M., Japanese and U.S. Cross-Border Common Stock Investments (March 1991). NBER Working Paper No. R1537. Available at SSRN: https://ssrn.com/abstract=227462

Kenneth R. French (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-350
Cambridge, MA 02142
United States
617-253-6673 (Phone)
617-253-1330 (Fax)

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