Do Regulatory Similarities Increase International Portfolio Holdings?

IUI Working Paper No. 612

49 Pages Posted: 10 Mar 2004 Last revised: 25 Jan 2008

See all articles by Jonas Vlachos

Jonas Vlachos

Stockholm University - Department of Economics; Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: December 12, 2004


By combining new data on bilateral asset holdings with data on securities regulation in an empirical gravity model, it is found that bilateral differences in securities regulation lead to decreased portfolio holdings. Hence, regulatory harmonization can foster financial integration. The results are especially strong for equity holdings. It is verified that the results do not just reflect general economic, institutional, and cultural differences. Additional analysis of causality shows the exogenous component of asset holdings to be associated with larger differences in securities regulation. This might suggest that regulatory differences are used to protect domestic capital markets from outside competition.

Keywords: Cross-border portfolio investments, gravity model, harmonization, home bias, integration, securities regulation

JEL Classification: F21, F36, G15, G18, K22

Suggested Citation

Vlachos, Jonas, Do Regulatory Similarities Increase International Portfolio Holdings? (December 12, 2004). IUI Working Paper. Available at SSRN: or

Jonas Vlachos (Contact Author)

Stockholm University - Department of Economics ( email )

Stockholm, 10691

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15

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