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Foreign portfolio investment patterns: evidence from a gravity model

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Lei Pan
Lei Pan
Lei Pan
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Rong Hu
Rong Hu
Rong Hu
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Qingyuan Du at Monash University (Australia)
Qingyuan Du
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Cross-country capital flows have been widely studied in the literature; however, why some countries may form more similar foreign investment portfolios than others has not been investigated. Using data for a broad panel of countries during the period 2002–2015, we adopt gravity equations to estimate cross-country foreign portfolio investment patterns. The main empirical results reveal that countries are more likely to form similar foreign portfolio investment patterns if: (i) countries are geographically closer; (ii) countries share the same official language; and (iii) countries adopt fixed exchange rate regimes.
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Empirical Economics (2022) 63:391–415
https://doi.org/10.1007/s00181-021-02133-0
Foreign portfolio investment patterns: evidence from a
gravity model
Lei Pan1·Rong Hu2·Qingyuan Du3
Received: 25 September 2020 / Accepted: 6 September 2021 / Published online: 20 September 2021
© The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021
Abstract
Cross-country capital flows have been widely studied in the literature; however, why
some countries may form more similar foreign investment portfolios than others has
not been investigated. Using data for a broad panel of countries during the period
2002–2015, we adopt gravity equations to estimate cross-country foreign portfolio
investment patterns. The main empirical results reveal that countries are more likely
to form similar foreign portfolio investment patterns if: (i) countries are geographically
closer; (ii) countries share the same official language; and (iii) countries adopt fixed
exchange rate regimes.
Keywords Foreign portfolio investment ·Gravity ·Exchange rate regimes
Mathematics Subject Classification F21 ·F31 ·F34
The authors thank Giovanni Caggiano, Russell Smyth, Vinod Mishra, Ben Li, Jian Lu, Silvio Contessi and
the seminar participants at Monash University for helpful comments. The authors are grateful to Joakim
Westerlund (editor-in-chief) and three insightful and constructive anonymous referees. This research is
part of Lei Pan’s PhD thesis at Monash University. The usual caveat applies.
BRong Hu
hurong@dufe.edu.cn
Lei Pan
lei.pan@curtin.edu.au
Qingyuan Du
qingyuan.du@monash.edu
1School of Accounting, Economics and Finance, Curtin University, Perth, WA 6102, Australia
2School of Economics, Dongbei University of Finance and Economics, Dalian 116025, Liaoning,
China
3Department of Economics, Monash University, 900 Dandenong Rd, Caulfield East, VIC 3145,
Australia
123
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
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