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Global Private Information in International Equity Markets

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  • Albuquerque, Rui
  • Bauer, Gregor H
  • Schneider, Martin

Abstract

This paper studies international equity markets when some investors have private information that is valuable for trading in many countries simultaneously. We use a dynamic model of equity trading to show that 'global' private information helps understand US investors’ trading behaviour and performance. In particular, the model predicts global return chasing - positive comovement of US investors’ net purchases with returns in many countries - which we show to be present in the data. Return chasing in our model can be due to superior performance of US investors, not inferior knowledge or naive trend-following. We also show that trades due to private information are strongly correlated across countries: a common 'global' factor accounts for about half their variation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5819.

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Date of creation: Sep 2006
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Handle: RePEc:cpr:ceprdp:5819

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Keywords: asymmetric information; global private information; home bias; international equity flows and returns; portfolio choice; private information; return chasing;

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References

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