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Working Paper
The stability of large external imbalances: the role of returns differentials
Were the U.S. to persistently earn substantially more on its foreign investments (?U.S. claims?) than foreigners earn on their U.S. investments (?U.S. liabilities?), the likelihood that the current environment of sizeable global imbalances will evolve in a benign manner increases. However, utilizing data on the actual foreign equity and bond portfolios of U.S. investors and the U.S. equity and bond portfolios of foreign investors, we find that the returns differential of U.S. claims over U.S. liabilities is essentially zero. Ending our sample in 2005, the differential is positive, whereas ...
Working Paper
The geography of capital flows: what we can learn from benchmark surveys of foreign equity holdings
To provide insight into the accuracy of U.S. data on international equity transactions, we compare estimates of U.S. holdings of equities in over 40 countries with actual holdings given by comprehensive U.S. benchmark surveys. If the rate of return used to revalue U.S. holdings in a given country is accurate, accurate holdings estimates imply accurate transactions data. For some countries, such as Canada and much of Latin America, the holdings estimates are quite accurate. For the majority of countries, however, there is a great disparity between our estimates and actual amounts, likely ...
Journal Article
The U.S. system for measuring cross-border investment in securities: a primer with a discussion of recent developments
The tremendous growth in cross-border securities investment in recent years has called attention to the systems used by the United States and other countries to measure international securities flows and holdings. Ideally, the data gathered by the United States could tell us the extent to which foreign investors hold U.S. securities, the types of securities held, and the countries in which the securities are held, for example, and could identify trends in investment. This article looks at how well the data shed light on these topics. Special attention is given to the system's design and the ...
Working Paper
Firm-level access to international capital markets: evidence from Chilean equities
High growth, liquid Chilean firms have greater relative weights in U.S. equity portfolios, but the most important determinant of a firm's portfolio weight is whether it is listed on a U.S. exchange. Cross-listing does not, however, appear to have permanent benefits: Weights in U.S. portfolios of firms that cross-listed in the mid-1990s increased at the expense of firms that cross-listed earlier. Put another way, firms appear to be able to access international capital at the time of the cross-listing, but this access may well be short-lived.
Working Paper
Look at me now: the role of cross-listing in attracting U.S. investors
We use a comprehensive 1997 survey to examine U.S. investors' preferences for foreign equities. We document a variety of firm characteristics that can influence U.S. investment, but the most important determinant is whether the stock is cross-listed on a U.S. exchange. Our selection bias-corrected estimates imply that firms that cross-list can increase their U.S. holdings by 8 to 11 percent of their market capitalization, roughly doubling the amount held without cross-listing. All else equal, we find that firms experience smaller increases in U.S. shareholdings upon cross-listing if they are ...
Working Paper
Exchange rate dynamics and the welfare effects of monetary policy in a two-country model with home-product bias
International spillovers and exchange rate dynamics are examined in a two-country dynamic optimizing model that allows for home-product bias in consumption patterns: at given relative prices the ratio of home goods consumed to foreign goods consumed is higher in the home country. The setup nests Obstfeld and Rogoff (1995), who assume identical tastes. With home bias, results are different in three ways. When preferences are biased, the wealth transfers associated with current account imbalances induce movements in the real exchange rate and produce large short-run and small long-run ...
Working Paper
A Simple Measure of the Intensity of Capital Controls
We propose a monthly measure of the intensity of capital controls across 29 emerging markets. Our measure, which is based on restrictions on foreign ownership of equities, provides information on the extent and evolution of financial liberalization. Using the measure, we show that a complete liberalization results in a much sharper decrease in the cost of capital than previously reported, but following a partial liberalization the cost of capital increases. Moreover, the more complete the liberalization is, the greater are the subsequent exchange rate appreciation and capital inflows.
Working Paper
The Performance of International Equity Portfolios
This paper evaluates the performance of U.S. investors' portfolios in the equities of over 40 countries over a 25-year period. We find that these portfolios achieved a significantly higher Sharpe ratio than foreign benchmarks, especially since 1990. We uncover three potential reasons for this success. First, U.S. investors abstained from momentum trading and instead sold past winners. Second, conditional performance tests provide no evidence that the superior (unconditional) performance owed to private information, suggesting that the successful exploitation of publicly available information ...
Working Paper
Home bias and high turnover reconsidered
It is a stylized fact of international finance that foreign equities are underweighted (the home bias) but overtraded (the high turnover). Since stylized facts drive research, theoretical models are now developed to explain the puzzling coexistence of home bias and high turnover, first presented in Tesar and Werner (1995), and researchers now dismiss transaction costs as a plausible explanation of home bias. I show, however, that part of the puzzle--very high turnover rates on foreign equity portfolios--is based on inaccurate estimates of cross-border holdings. Revised estimates of holdings ...
Working Paper
U.S. investors' emerging market equity portfolios: a security-level analysis
We analyze a unique data set and uncover a remarkable result that casts a new light on the home bias phenomenon. The data are comprehensive, security-level holdings of emerging market equities by U.S. investors. We document, as expected, that at a point in time U.S. portfolios are tilted towards firms that are large, have fewer restrictions on foreign ownership, or are cross-listed on a U.S. exchange. The size of the cross-listing effect is striking. In contrast to the well-documented underweighting of foreign stocks, emerging market equities that are cross-listed on a U.S. exchange are ...