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Is Correlation Puzzle Really Puzzling? Reassessing Motives Of Foreign Asset Holdings By Us Investors

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  • Kenta Inoue

Abstract

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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  • Kenta Inoue, 2014. "Is Correlation Puzzle Really Puzzling? Reassessing Motives Of Foreign Asset Holdings By Us Investors," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 160-172, March.
    • Handle: RePEc:wly:ijfiec:v:19:y:2014:i:2:p:160-172
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