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Vincent Arthur Floreani
- 8 June 2015
- WORKING PAPER SERIES - No. 1799Details
- Abstract
- This paper investigates whether global investors are over or under exposed to- wards the euro area and the role of home bias and institutions at home in shaping this exposure. According to a simple benchmark from standard portfolio theory, euro area investors - in particular those from euro area low-rating economies - are overexposed to euro area securities. Instead, investors outside the EU are underexposed to euro area securities in their total portfolio, proportionally to their degree of home bias, but not in their foreign portfolio. Nevertheless, once we account for gravity factors, the largest foreign investors overweigh euro area securities, especially debt of euro area high rating economies. Crucially, this overexposure was resilient to the euro area crisis. Moreover, we show that institutions at home are important to explain exposure to euro area securities. In particular, the higher the standards of governance at home, the greater the exposure to the euro area debt.
- JEL Code
- E2 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
F3 : International Economics→International Finance
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets