Why foreigners invest in U.S. markets

Reading Time: 1 min 
Already a member?
Not a member?
Sign up today
Member
Free

5 Free Articles per month, $6.95/article thereafter. Free newsletter.

Subscribe
$75/Year

Unlimited digital content, quaterly magazine, free newsletter, entire archive.

Sign me up

One factor behind the U.S. government’s decision to take over troubled mortgage companies Fannie Mae and Freddie Mac? Concerns expressed by foreign investors, The Wall Street Journal reports. That brings to mind a new working paper by MIT Sloan School associate professor Kristin J. Forbes.  She studied the question of why foreigners continue to invest in U.S. markets even though their returns over the 2002-2006 period were far lower than Americans’ returns on investment abroad.  Such nondomestic investment plays an important role in the current U.S. economy — with foreigners investing an average of more than $5 billion every day in the U.S., according to Professor Forbes.

Forbes’ analysis leads her to the conclusion that foreigners are more likely to invest in the U.S. if their own country’s capital markets are not as well developed as American ones. That finding suggests that, as other countries gradually improve their domestic financial markets, they will over time invest less in the U.S. That shift would likely be gradual, Forbes writes — with one caveat: Since the perceived liquidity and efficiency of American financial markets is an important factor driving foreign investment here, anything that undermines that perception could risk the stability of those ongoing capital inflows into the U.S.

Small wonder, then, that the U.S.

Read the Full Article

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.