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.