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International Equity Flows and Returns: A Quantitative Equilibrium Approach

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  • Rui Albuquerque

    (Simon School of Business, University of Rochester)

  • Gregory Bauer

    (Bank of Canada)

  • Martin Schneider

    (New York University)

Abstract

This paper considers the role of foreign investors in developed-country equity markets. It presents a quantitative model of trading that is built around two new assumptions: (i) both the foreign and domestic investor populations contain investors of different sophistication, and (ii) investor sophistication matters for performance in both public equity and private investment opportunities. The model delivers a unified explanation for three stylized facts about US investors' international equity trades: (i) trading by US investors occurs in bursts of simultaneous buying and selling, (ii) Americans build and unwind foreign equity positions gradually and (iii) US investors increase their market share in a country when stock prices there have recently been rising. The results suggest that heterogeneity within the foreign investor population is much more important than heterogeneity of investors across countries.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0405006.

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Date of creation: 06 May 2004
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Handle: RePEc:wpa:wuwpif:0405006

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Keywords: Asymmetric information; heterogenous investors; asset pricing; international equity flows; international equity returns;

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