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Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire, good news travels slow

  • Jordi Mondria

    (University of North Carolina at Chapel H)

  • Thomas Wu

    (University of California, Santa Cruz)

In this paper, we decompose attention allocation in two components -- the familiar and the surprising -- with opposite implications for US purchases of foreign stocks. On one hand, familiarity-induced attention leads to an increase in US holdings of foreign equities. On the other hand, surprise-induced attention is associated with net selling of foreign stocks because US investors' tend to pay more attention to negative than to positive economic surprises from other countries. Our findings suggest that information asymmetries between locals and non-locals are more pronounced when it comes to good news, with information regarding bad news being relatively symmetric.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 50.

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Date of creation: 2012
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Handle: RePEc:red:sed012:50
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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