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US International Equity Investment and Past and Prospective Returns

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  • Stephanie E. Curcuru
  • Charles P. Thomas
  • Francis E. Warnock
  • Jon Wongswan

Abstract

Counter to extant stylized facts, using newly available data on country allocations in US investors' foreign equity portfolios we find that (i) US investors do not exhibit returns-chasing behavior, but, consistent with partial portfolio rebalancing, tend to sell past winners; and (ii) US investors increase portfolio weights on a country's equity market just prior to its strong performance, behavior inconsistent with an informational disadvantage. Over the past two decades, US investors' foreign equity portfolios outperformed a value-weighted foreign benchmark by 160 basis points per year. (JEL: C58, G11, G15)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 7 (December)
Pages: 3440-55

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:7:p:3440-55

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Cited by:
  1. Straub, Roland & Forbes, Kristin & Fratzscher, Marcel & Kostka, Thomas, 2013. "Bubble Thy Neighbor: Portfolio Effects and Externalities from Capital Controls," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79785, Verein für Socialpolitik / German Economic Association.
  2. Robert Vermeulen, 2011. "International Diversification During the Financial Crisis: A Blessing for Equity Investors?," DNB Working Papers, Netherlands Central Bank, Research Department 324, Netherlands Central Bank, Research Department.
  3. Alexander Franck & Andreas Walter & Johannes Witt, 2013. "Momentum strategies of German mutual funds," Financial Markets and Portfolio Management, Springer, Springer, vol. 27(3), pages 307-332, September.
  4. Karen K. Lewis, 2011. "Global Asset Pricing," NBER Working Papers 17261, National Bureau of Economic Research, Inc.
  5. Fratzscher, Marcel, 2012. "Capital controls and foreign exchange policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8788, C.E.P.R. Discussion Papers.
  6. Curcuru, Stephanie E. & Thomas, Charles P. & Warnock, Francis E. & Wongswan, Jon, 2014. "Uncovered Equity Parity and Rebalancing in International Portfolios," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1103, Board of Governors of the Federal Reserve System (U.S.).
  7. Chang, Kuang Liang & Chen, Nan Kuang & Leung, Charles Ka Yui, 2011. "The Dynamics of Housing Returns in Singapore: How Important are the International Transmission Mechanisms?," MPRA Paper 32255, University Library of Munich, Germany.
  8. Kanda Naknoi & YiLi Chien, 2013. "The Risk Premium and Long-Run Global Imbalances," 2013 Meeting Papers, Society for Economic Dynamics 55, Society for Economic Dynamics.
  9. Cai, Fang & Warnock, Francis E., 2012. "Foreign exposure through domestic equities," Finance Research Letters, Elsevier, Elsevier, vol. 9(1), pages 8-20.
  10. Brandon Julio & Youngsuk Yook, 2013. "Policy uncertainty, irreversibility, and cross-border flows of capital," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2013-64, Board of Governors of the Federal Reserve System (U.S.).
  11. Karen K. Lewis, 2011. "Global asset pricing," Globalization and Monetary Policy Institute Working Paper 88, Federal Reserve Bank of Dallas.
  12. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.

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