We study the role of bilateral political relations in explaining variations in the equity portfolio allocation of foreign institutional investors. Using a large micro sample at the fund-firm-year level, we find that when the relations between two countries become more distant, institutional...

"One of the main economic villains before the crisis was the presence of large "global imbalances." The concern was that the U.S. would experience a sudden stop of capital flows, which would unavoidably drag the world economy into a deep recession. However, when the crisis finally did come, the...