Working Paper Series
Does Regulatory Harmonization Increase Bilateral Asset Holdings?
Abstract: By combining new data on bilateral asset holdings with
data on securities regulation in an empirical gravity model, it is found
that bilateral differences in securities regulation lead to decreased
portfolio holdings. Hence, regulatory harmonization can foster financial
integration. The results are especially strong for equity holdings. It is
verified that the results do not just reflect general economic,
institutional, and cultural differences. Additional analysis of causality
shows the exogenous component of asset holdings to be associated with
larger differences in securities regulation. This might suggest that
regulatory differences are used to protect domestic capital markets from
Keywords: Cross-Border Portfolio Investments; Gravity Model; Harmonization; Home Bias; Integration; Securities Regulation; (follow links to similar papers)
JEL-Codes: F21; F36; G15; G18; K22; (follow links to similar papers)
39 pages, March 5, 2004
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