Geography of cross-border portfolio investments and ICT diffusion

•It is the first-ever extensive study of the foreign portfolio investments (FPI) between 67 source and 173 host countries from 2001 to 2013.•The diffusion of internet facilitates higher information transmission and lower information costs, leading to an increase in the real FPI.•When the investor is confined to financial institutions, the effects of internet diffusion on the real FPI holdings are of less degree.•It is also found that the effect of internet diffusion is higher in earlier periods, due to the rapid development of internet in early 2000s.•Further, information barrier/asymmetries may work as a huge deterrence when the volume of asset trading between countries is small or near zero.

The main purpose of this study is to explore how the ease and efficiency of information transmission, facilitated by the diffusion of the Internet, may affect the cross-border financial asset trades between countries. With an extensive panel dataset of 67 source countries and 173 host countries from 2001 to 2013, it is found that the Internet diffusion leads to an increase in the bilateral FPI holdings. The magnitude of the effect increases as the level of FPI holdings approaches zero, indicating that information barrier is a stronger deterrence at the near-zero level of asset trades.