U.S. International Equity Investment


  • Accepted by Abbie Smith. The authors thank Sandro Andrade, Mark Carey, Mihir Desai, Laura Field, Charles Hadlock, Andrew Karolyi, Christian Leuz, Ross Levine, Michelle Lowry, Darius Miller, Greg Nini, Bent Sorensen, Mark Spiegel, Michael Weisbach, an anonymous referee, and seminar participants at annual conferences of the EFA and AFA, Binghamton University (SUNY), College of William and Mary, European Central Bank, Federal Reserve Board, Federal Reserve System SCIEA Meetings, ISCTE Business School, Michigan State University, NYSE, Penn State University, Stockholm Institute for Financial Research, Universidad Catolica Portuguesa, Universidade do Porto, University of Houston, University of Minnesota, and University of Virginia for helpful comments. Nathanael Clinton and Alex Rothenberg provided exceptional research assistance. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or of any other employee of the Federal Reserve System. The statistical analysis of security-level data on U.S. investors’ holdings reported in this study was conducted at the International Finance Division of the Board of Governors of the Federal Reserve System under arrangements that maintained legal confidentiality requirements. Warnock thanks the Darden School Foundation for generous support. Previous versions of this paper were titled “Look at Me Now: What Attracts U.S. Shareholders?”


Using a comprehensive data set of all U.S. investment in foreign equities, we find that the single most important determinant of the amount of U.S. investment a foreign firm receives is whether the firm cross-lists on a U.S. exchange. Correcting for selection biases, cross-listing leads to a doubling (or more) in U.S. investment, an impact greater than all other factors combined. Much of this increased U.S. investment is purchased in the foreign market, implying that the cross-listing effect reflects something more fundamental about a firm than easier acquisition of its securities. We also demonstrate that cross-listing is an important determinant of U.S. international investment at the country level and describe easy-to-implement methods for including a cross-listing variable as an endogenous control.