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Differences of Opinion and International Equity Markets

Author

Listed:
  • Bernard Dumas
  • Karen K. Lewis
  • Emilio Osambela

Abstract

We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information content in public signals. We determine how informational advantages by domestic (foreign) investors in the interpretation of home (foreign) public signals impact equity markets. Our model generates four standard international pricing anomalies: (i) the co-movement of returns and international capital flows; (ii) home equity preference; (iii) the dependence of firm returns on home and foreign factors; and (iv) abnormal returns around foreign firm cross-listing in the home market.

Suggested Citation

  • Bernard Dumas & Karen K. Lewis & Emilio Osambela, 2014. "Differences of Opinion and International Equity Markets," GSIA Working Papers 2010-E79, Carnegie Mellon University, Tepper School of Business.
    • Handle: RePEc:cmu:gsiawp:1289331517
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    References listed on IDEAS

    as
    1. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
    2. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-297, April.
    3. Karen K. Lewis, 1996. "Consumption, stock returns, and the gains from international risk-sharing," Working Papers 96-6, Federal Reserve Bank of Philadelphia.
    4. G. Andrew Karolyi, 2006. "The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom," Review of Finance, European Finance Association, vol. 10(1), pages 99-152.
    5. Lewis, Karen K., 2000. "Why do stocks and consumption imply such different gains from international risk sharing?," Journal of International Economics, Elsevier, vol. 52(1), pages 1-35, October.
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F3 - International Economics - - International Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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