Abstract
This paper investigates the tension between regulation and financial education in explaining international portfolio diversification. We show that higher investor's financial education fosters international investment and stronger minority investor protection legislation attracts inward investment. More interestingly, these factors appear to be substitute in enhancing investor's portfolio diversification: the role of financial education is particularly pronounced where information problems and monitoring costs are likely to be more severe, that is, in countries where protection of minority shareholders' rights is weaker. We interpret this evidence as supportive of the conjecture that financial education lessens the informational constraints of foreign investors.
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