Differences of Opinion and International Equity Markets
We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information in economic signals. Similar to models of asymmetric information, we consider how informational advantages by domestic investors about local output impacts equity markets. In contrast to these models, however, all information is publicly available, but domestic investors are better equipped to understand the information in local news. We show that our model can help explain four standard international pricing anomalies: (i) home equity preference; (ii) the co-movement of returns and international capital flows; (iii) the dependence of firm returns on local and foreign factors; and (iv) abnormal returns around foreign firm cross-listing in the local market.
|Date of creation:||Jan 2011|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16726. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.