European portfolio investment outflows: the impact of the European Monetary Union
Main Article Content
Abstract
The objective of this paper is to analyse the main determinants of bilateral foreign portfolio
investment (FPI) from European countries to host countries, including European Union
countries, other developed countries and emerging markets. An FPI model based on an
extended gravity equation is estimated from a panel data set over the period 2001-2006.
Among the explanatory variables are interest rate differentials, the expected exchange rate
uncertainty – estimated by an autoregressive conditional heteroskedasticity (ARCH) model –
a dummy variable for the European Monetary Union (EMU) and gravity variables. The
results give support for the asymmetric information hypothesis since the EMU variable and
geographical and institutional distances are estimated to be significant, indicating a regional
“home bias” effect for European portfolio holdings.
investment (FPI) from European countries to host countries, including European Union
countries, other developed countries and emerging markets. An FPI model based on an
extended gravity equation is estimated from a panel data set over the period 2001-2006.
Among the explanatory variables are interest rate differentials, the expected exchange rate
uncertainty – estimated by an autoregressive conditional heteroskedasticity (ARCH) model –
a dummy variable for the European Monetary Union (EMU) and gravity variables. The
results give support for the asymmetric information hypothesis since the EMU variable and
geographical and institutional distances are estimated to be significant, indicating a regional
“home bias” effect for European portfolio holdings.
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Long Paper
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