International equity portfolio allocations and transaction costs

Chandra Thapa, S Poshakwale

Research output: Contribution to journalArticle

19 Citations (Scopus)

Abstract

In spite of the critical role of transaction cost, there are not many papers that explicitly examine its influence on international equity portfolio allocation decisions. Using bilateral cross-country equity portfolio investment data and three direct measures of transaction costs for 36 countries, we provide evidence that markets where transaction costs are lower attract greater equity portfolio investments. The results imply that future research on international equity portfolio diversification cannot afford to ignore the role of transaction costs, and policy makers, especially in emerging markets, will have to reduce transaction costs to attract higher levels of foreign equity portfolio investments.
Original languageEnglish
Pages (from-to)2627-2638
Number of pages12
JournalJournal of Banking and Finance
Volume34
Issue number11
DOIs
Publication statusPublished - Nov 2010

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Equity
Transaction costs
Portfolio allocation
Portfolio investment
Portfolio diversification
Emerging markets
Bilateral
Politicians

Keywords

  • portfolio diversification
  • international equity allocation
  • transaction costs
  • developed and emerging markets
  • panel data models

Cite this

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International equity portfolio allocations and transaction costs. / Thapa, Chandra; Poshakwale, S.

In: Journal of Banking and Finance, Vol. 34, No. 11, 11.2010, p. 2627-2638.

Research output: Contribution to journalArticle

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AU - Poshakwale, S

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AB - In spite of the critical role of transaction cost, there are not many papers that explicitly examine its influence on international equity portfolio allocation decisions. Using bilateral cross-country equity portfolio investment data and three direct measures of transaction costs for 36 countries, we provide evidence that markets where transaction costs are lower attract greater equity portfolio investments. The results imply that future research on international equity portfolio diversification cannot afford to ignore the role of transaction costs, and policy makers, especially in emerging markets, will have to reduce transaction costs to attract higher levels of foreign equity portfolio investments.

KW - portfolio diversification

KW - international equity allocation

KW - transaction costs

KW - developed and emerging markets

KW - panel data models

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DO - 10.1016/j.jbankfin.2010.05.004

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JF - Journal of Banking and Finance

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