IS CORRELATION PUZZLE REALLY PUZZLING? REASSESSING MOTIVES OF FOREIGN ASSET HOLDINGS BY US INVESTORS | Zendy

Inoue Kenta | Zendy

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IS CORRELATION PUZZLE REALLY PUZZLING? REASSESSING MOTIVES OF FOREIGN ASSET HOLDINGS BY US INVESTORS

Author(s) -

Inoue Kenta

Publication year - 2014

Publication title -

international journal of finance and economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.505

H-Index - 39

eISSN - 1099-1158

pISSN - 1076-9307

DOI - 10.1002/ijfe.1476

Subject(s) - economics , asset (computer security) , financial economics , gravity equation , financial asset , correlation , negative correlation , capital asset pricing model , positive correlation , monetary economics , econometrics , finance , bilateral trade , political science , law , china , medicine , geometry , computer security , mathematics , computer science

This paper addresses a correlation puzzle in the financial gravity literature by taking into account a return‐chasing motive previously under‐researched as determinants of cross‐border asset holdings. I estimate a financial gravity equation to explain US investors' behaviour and confirm that even with the return chasing motive, the correlation puzzle remains unsolved. Furthermore, the data give a limited support for the return‐chasing motive. I find that USA's foreign asset holdings cannot be well explained by the correlation structure and excess returns. Copyright © 2013 John Wiley & Sons, Ltd.

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