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Foreign Under-Investment In Us Securities And The Role Of Relational Capital, Bryane Michael
Foreign Under-Investment In Us Securities And The Role Of Relational Capital, Bryane Michael
Bryane Michael (bryane.michael@stcatz.ox.ac.uk)
Over 70 academic papers attempt to explain why foreigners invest in US securities. All ignore the vital role of the US broker-dealer. Macroeconomic factors like a trade balance or corporate governance may guide foreign investors toward certain markets. But US broker-dealers provide information to foreign investors and execute the actual trades. We hypothesize that particular foreign investors under-invest in US securities because of a lack of relational capital with US broker-dealers. We find that broker-dealer marketing intensity in foreign markets partly explains foreigners’ decisions to invest in US securities. We also estimate “pent-up” demand for US securities in developing countries …