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Differences of Opinion and International Equity Markets


  • Bernard Dumas
  • Karen K. Lewis
  • Emilio Osambela


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.

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  • 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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    Cited by:

    1. Curcuru, Stephanie E. & Thomas, Charles P. & Warnock, Francis E. & Wongswan, Jon, 2014. "Uncovered Equity Parity and rebalancing in international portfolios," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 86-99.
    2. Forbes, Kristin J. & Warnock, Francis E., 2012. "Capital flow waves: Surges, stops, flight, and retrenchment," Journal of International Economics, Elsevier, vol. 88(2), pages 235-251.
    3. Baker, Steven D. & Hollifield, Burton & Osambela, Emilio, 2016. "Disagreement, speculation, and aggregate investment," Journal of Financial Economics, Elsevier, vol. 119(1), pages 210-225.

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