Newton meets Van Leeuwenhoek: Identifying international investors' common currency preferences

- We present new evidence on investors' preference for assets denominated in their home country's currency.
- We estimate a gravity model using the Securities Holdings Statistics database with end-2014 data.
- We analyse the difference between preferences for debt securities denominated in euros vs. debt securities issued by euro area residents.
- On top of home bias and gravity effects, common currency preference is an important determinant of debt holdings.

Using a novel security-by-security dataset, this paper distinguishes investor preferences for euro-denominated debt securities from investor preferences for debt securities issued by euro area residents. We estimate a gravity model and show that investors have a preference for securities in their home country and countries close to their home country. Furthermore, investors have a strong preference for holding debt securities denominated in euros. Whether a security is issued by a euro area resident or a non-euro area resident is of secondary importance. These results are important for the literature on international investment positions for identifying investors' currency preferences.