A1458
Title: Drivers of portfolio equity and bond investment in the European Union: The interplay of tax havens and gravity factors
Authors: Mariam Camarero - University Jaume I (Spain) [presenting]
Abstract: The purpose is to examine the determinants of portfolio equity and bond investment in the European Union. The impact of different drivers typical of the gravity model developed by another study is estimated. A notable aspect is that it accounts for the effects of tax havens through a recent database. Findings suggest that gravity variables (distance, economic size, and resistance), as well as historical links and global risk, explain portfolio holdings allocation. The model also captures the positive effect of government quality and financial development on portfolio equity and bonds. Given the differences in nature and risk between assets, the results are also compared for portfolio equity and bonds, finding that while portfolio equity is more mobile, portfolio debt tends to be invested in neighboring countries; more specifically, EU debt tends to remain in the EU. Results also suggest that portfolio equity is more affected by global risk and multilateral financial restrictions. Finally, the comparative analysis using the IMF CPIS database (constructed under the residence principle) shows that not accounting for tax havens underestimates the gravity and fundamental factors explaining portfolio equity and bonds holdings investment.
