International Investment Patterns

时间和刊物： 2008  The Review of Economics and Statistics

主要内容：a systematic analysis of bilateral, source and host factors driving portfolio equity investment across countries. develops a model that links bilateral equity holdings to bilateral trade in goods and services.

思考机理：In a fully integrated global economy without frictions in product or asset markets, benchmark economic theory suggests that investors should hold identical portfolios, regardless of nationality. Documenting and explaining deviations from this benchmark position potentially reveals the nature of the current limitations on global economic integration. (deviation from the theory is where limitation lies on.)

进一步提出问题：how do frictions in product markets affect the structure of international financial trade? Are cultural/informational factors important in explaining the bilateral structure of international portfolios? What is the connection between domestic and international financial development?

三个理论模型：1）In a two-country setting, Obstfeld and Rogoff (2001) show that the existence of frictions in product markets naturally generates a home bias in equity positions；2）Martin and Rey (2003) focus on transactional frictions in asset markets. larger countries will have deeper domestic equity markets and a reduction in financial trade costs leads to more international asset trade; 3) Davis, Nalewaik and Willen (2001) also focus on financial market incompleteness: an international equity fund improves risk allocation.