Seeing is Believing: Tourism and Foreign Equity Investments
59 Pages Posted: 13 Nov 2018 Last revised: 6 Feb 2024
Date Written: February 2, 2024
Abstract
This study examines whether international tourism affects financial market investments. We find that recreational travel between countries is associated with higher levels of foreign equity investments. This increase in foreign equity investments reduces home bias for both U.S. households and institutional investors. Further, the effect of travel on foreign investments is unlikely to be induced by superior information. Using scenery-related predictors of recreational travel as instruments and exploiting exogenous shocks to travel, we establish a causal relation between international travel and foreign equity investments. Collectively, these results suggest that tourism has positive externalities in financial markets.
Keywords: International tourism, foreign equity investments, home bias, familiarity.
JEL Classification: G11, G15
Suggested Citation: Suggested Citation