Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154232
Authors: 
Floreani, Vincent Arthur
Habib, Maurizio Michael
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1799
Abstract: 
This paper investigates whether global investors are over or under exposed to- wards the euro area and the role of home bias and institutions at home in shaping this exposure. According to a simple benchmark from standard portfolio theory, euro area investors - in particular those from euro area low-rating economies - are overexposed to euro area securities. Instead, investors outside the EU are underexposed to euro area securities in their total portfolio, proportionally to their degree of home bias, but not in their foreign portfolio. Nevertheless, once we account for gravity factors, the largest foreign investors overweigh euro area securities, especially debt of euro area high rating economies. Crucially, this overexposure was resilient to the euro area crisis. Moreover, we show that institutions at home are important to explain exposure to euro area securities. In particular, the higher the standards of governance at home, the greater the exposure to the euro area debt.
Subjects: 
Cross-border portfolio holdings
home bias
institutions
international finance gravity model
JEL: 
E2
F3
G11
G15
ISBN: 
978-92-899-1612-7
Document Type: 
Working Paper

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