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The International Equity Holdings of Euro Area Investors

Philip R. Lane and Gian Maria Milesi-Ferretti

IIIS Discussion Paper No. 104


We provide a systematic analysis of bilateral, source and host factors driving portfolio equity investment by euro-area countries, using newly-released data on international equity holdings at the end of 2001. We find that bilateral equity holdings are strongly linked to bilateral trade in goods and services and are also associated with proxies for informational proximity. We further document that there exists a significant “euro-area bias”, with euro-area countries investing in other euro-area countries over and above the amount predicted by underlying fundamentals.

JEL Classification: F21, F34

Keywords: International portfolio equity investment, international trade; gravity.

Last updated 28 August 2014 by IIIS (Email).