At age three, children from ethnic minorities had lower literacy levels on average than those from a white background, but by the time they were seven the situation had changed, with ethnic minority children ahead in reading.
It adds that children in London were behind their peers in other parts of the country in literacy at age three, but surged forward in the next four years and by age seven were ahead not only of other youngsters in England but also those in the rest of the UK.
The researchers warned that the performance of youngsters in the capital may have an influence on England's overall reading levels.
"It is not entirely clear whether the apparent 'benefit' of living in England on literacy at age seven can be attributed to its distinctive national education policies," the study says.
"For example, differences found between England and the rest of the UK may in part be due to the significant improvement in cognitive development of children living in London.
"In turn, however, the differences between London and the rest of England may be due to the significant improvement of ethnic minority children who are concentrated in the capital."
The study did find that Welsh pupils are ahead of those in England and Wales at age seven in reasoning, and in maths, English and Welsh seven-year-olds had similar performance levels, with those in Scotland slightly behind.