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Characterizing Asymmetric Information in International Equity Markets

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Author Info

  • Rui Albuquerque

    (Simon School of Business, University of Rochester)

  • Gregory Bauer

    (Bank of Canada)

  • Martin Schneider

    (New York University)

Abstract

This paper studies the international portfolio flows of US investors to examine the information structure of international equity markets. We use an empirical model of portfolio flows with both public and private information to extract measures of trades due to private information. We find that such trades are highly correlated across countries. In particular, a common 'global' factor accounts for about half of the variation in trades due to private information. We show that the global factor helps explain the cross section of international equity returns, after controlling for public information. The finding that a substantial portion of trades due to private information across countries contains the same common information challenges the conventional view that domestic investors have better private information about their home market than foreign investors.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0405005.

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Date of creation: 06 May 2004
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Handle: RePEc:wpa:wuwpif:0405005

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Web page: http://128.118.178.162

Related research

Keywords: Private information; asymmetric information; portfolio choice; international equity flows and returns; home bias;

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References

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Citations

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Cited by:
  1. Albuquerque, Rui, 2003. "The composition of international capital flows: risk sharing through foreign direct investment," Journal of International Economics, Elsevier, vol. 61(2), pages 353-383, December.
  2. Albuquerque, Rui & Bauer, Gregory H. & Schneider, Martin, 2004. "International equity flows and returns: a quantative equilibrium approach," Working Paper Series 0310, European Central Bank.
  3. Gregory H. Bauer & Clara Vega, 2006. "The monetary origins of asymmetric information in international equity markets," International Finance Discussion Papers 872, Board of Governors of the Federal Reserve System (U.S.).
  4. 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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