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Newton meets Van Leeuwenhoek: Identifying international investors’ common currency preferences

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  • Boermans, Martijn A.
  • Vermeulen, Robert

Abstract

Using a novel security-by-security dataset, this paper distinguishes investor preferences for euro-denominated debt securities from investor preferences for debt securities issued by euro area residents. We estimate a gravity model and show that investors have a preference for securities in their home country and countries close to their home country. Furthermore, investors have a strong preference for holding debt securities denominated in euros. Whether a security is issued by a euro area resident or a non-euro area resident is of secondary importance. These results are important for the literature on international investment positions for identifying investors’ currency preferences.

Suggested Citation

  • Boermans, Martijn A. & Vermeulen, Robert, 2016. "Newton meets Van Leeuwenhoek: Identifying international investors’ common currency preferences," Finance Research Letters, Elsevier, vol. 17(C), pages 62-65.
    • Handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:62-65
    DOI: 10.1016/j.frl.2016.01.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matteo Maggiori & Brent Neiman & Jesse Schreger, 2020. "International Currencies and Capital Allocation," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2019-2066.
    2. Burger, John D. & Warnock, Francis E. & Warnock, Veronica Cacdac, 2018. "Currency matters: Analyzing international bond portfolios," Journal of International Economics, Elsevier, vol. 114(C), pages 376-388.
    3. de Haan, Leo & Vermeulen, Robert, 2021. "Sovereign debt ratings and the country composition of cross-border holdings of euro area sovereign debt," Journal of International Money and Finance, Elsevier, vol. 119(C).
    4. Roland Beck & Antonio Coppola & Angus Lewis & Matteo Maggiori & Martin Schmitz & Jesse Schreger, 2024. "The geography of capital allocation in the euro area," IFC Bulletins chapters, in: Bank for International Settlements (ed.), External statistics in a fragmented and uncertain world, volume 62, Bank for International Settlements.
    5. de Haan, Leo & Vermeulen, Robert, 2021. "Sovereign debt ratings and the country composition of cross-border holdings of euro area sovereign debt," Journal of International Money and Finance, Elsevier, vol. 119(C).
    6. Vahagn Galstyan & Adnan Velic, 2018. "International Investment Patterns: the Case of German Sectors," Open Economies Review, Springer, vol. 29(3), pages 665-685, July.
    7. Boermans, Martijn A. & Burger, John D., 2023. "Fickle emerging market flows, stable euros, and the dollar risk factor," Journal of International Economics, Elsevier, vol. 142(C).
    8. Martijn A. Boermans & Robert Vermeulen, 2020. "International investment positions revisited: Investor heterogeneity and individual security characteristics," Review of International Economics, Wiley Blackwell, vol. 28(2), pages 466-496, May.
    9. Carvalho, Daniel, 2022. "The portfolio holdings of euro area investors: Looking through investment funds," Journal of International Money and Finance, Elsevier, vol. 120(C).
    10. Ogrokhina, Olena & Rodriguez, Cesar M., 2019. "The effect of inflation targeting and financial openness on currency composition of sovereign international debt," Journal of International Money and Finance, Elsevier, vol. 97(C), pages 1-18.
    11. Martijn Boermans & Robert Vermeulen, 2018. "Quantitative easing and preferred habitat investors in the euro area bond market," DNB Working Papers 586, Netherlands Central Bank, Research Department.
    12. Martijn Boermans, 2022. "A literature review of securities holdings statistics research and a practitioner’s guide," Working Papers 757, DNB.

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    More about this item

    Keywords

    International portfolio choice; Gravity model; Euro currency; Securities holdings statistics;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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