Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/124929 
Year of Publication: 
2015
Series/Report no.: 
IZA Discussion Papers No. 9405
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
We examine how emerging market (EM) investors allocate their stock portfolios internationally. Using both country-level and institution-level data, we find that the coming wave of EM investors systematically over- and under-weight their holdings in some target countries. These abnormal foreign allocation biases of EM investors offer robust support of the information endowment hypothesis of van Nieuwerburgh and Veldkamp (2009). Specifically, past capital and trade flows from a foreign country to the home country create an information endowment (or advantage) that lead home country investments to be overweight that foreign country. At the institutional level, information advantage proxies based on relationships between EM institutional investors and the headquarters of their parent companies have strong explanatory power for international portfolio allocations. The results remain robust after controlling for other factors like geographic and other measures of economic proximity, economic and capital market development, market integration, market returns and correlation, and corporate governance. The information advantage effect is stronger for EM investors for which external portfolios exhibit a higher degree of concentration.
Subjects: 
global portfolio allocation
portfolio equity investment
institutional investors
emerging market economies
JEL: 
G11
G15
F21
Document Type: 
Working Paper

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