Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153249 
Year of Publication: 
2007
Series/Report no.: 
ECB Working Paper No. 815
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We analyze the interlinkages between foreign direct investment (FDI) and foreign portfolio investment (FPI) between Germany and the major economies. First, we show that Tobin’s q helps explaining the variation of the growth rate of the stock of FDI. Second, we show that foreign and the home stock market returns explain the ariation of the growth rate of the stock of FPI. Most importantly, we find that information about foreign fundamentals is revealed via direct investment. In other words, FDI transactions measured by fitted growth rates of the stock of FDI help explaining current growth rates of the stock of FPI. To our knowledge this observation is the first unambiguous evidence that international portfolio investors follow firms’ expected foreign investment decisions.
Subjects: 
and Information Spillovers
Foreign Direct Investment
Foreign Portfolio Investment
Investor Heterogeneity
Tobin’s q
JEL: 
F21
F23
G11
G15
Document Type: 
Working Paper

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