Seeing is Believing: Tourism and International Equity Investments
56 Pages Posted: 13 Nov 2018 Last revised: 9 Sep 2022
Date Written: July 25, 2022
We examine whether international tourism affects financial market investments. Using data for more than 40 countries, we show that recreational travel is associated with higher levels of foreign equity investments. This increase in foreign equity investment causes a reduction in the home bias. The impact of tourism is stronger for countries that are farther apart and countries with more risk averse residents. Using a scenery-related predictor of recreational travel as an instrument, we show that the relation between foreign travel and foreign equity investments is causal. Collectively, these results suggest that tourism has positive externalities in financial markets.
Keywords: International tourism, foreign equity investments, home bias, familiarity.
JEL Classification: G11, G15
Suggested Citation: Suggested Citation