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International equity flows and returns: a quantitative equilibrium approach

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  • Rui Albuquerque

    (Carol Simon Hall, University of Rochester, Rochester, NY 14627)

  • Gregory H. Bauer

    (Carol Simon Hall, University of Rochester, Rochester, NY 14627)

  • Martin Schneider

    (Department of Economics at NYU, 269 Mercer St., 7th floor, New York, NY 10003)

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 0508006.

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Length: 73 pages
Date of creation: 12 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0508006

Note: Type of Document - pdf; pages: 73
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Web page: http://128.118.178.162

Related research

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

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References

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