Does Regulatory Harmonization Increase Bilateral Asset Holdings?

41 Pages Posted: 19 Jul 2004

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: June 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

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

Suggested Citation

Vlachos, Jonas, Does Regulatory Harmonization Increase Bilateral Asset Holdings? (June 2004). Available at SSRN:

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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