publication . Preprint . 2005

An Information-Based Trade Off between Foreign Direct Investment and Foreign Portfolio Investment

Itay Goldstein; Assaf Razin;
Open Access
  • Published: 01 Nov 2005
The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI).The model describes an information-based trade off between direct investments and portfolio investments. Direct investors are more informed about the fundamentals of their projects. This information enables them to manage their projects more efficiently. However, it also creates an asymmetric-information problem in case they need to sell their projects prematurely, and reduces the price they can get in that case. As a result, investors, who know they are more likely to get a liquidity shock that forces them to sell early, are more likely to choose portfolio inv...
free text keywords: jel:F3, jel:G3
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