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Gross Capital Flows and Asymmetric Information

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Abstract

This paper shows that the behavior of gross capital flows can identify the nature of information asymmetries in international equity markets. Information asymmetry between foreign and domestic investors implies a correlation between net flows and returns. Information asymmetry within groups of foreign and domestic investors implies that gross flows and absolute returns are correlated. I find that the correlation between gross flows and absolute returns is stronger than the correlation between net flows and returns, suggesting that information asymmetries within countries are more important than those between countries.

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  • Tomas Dvorak, 2001. "Gross Capital Flows and Asymmetric Information," Department of Economics Working Papers 2001-07, Department of Economics, Williams College.
    • Handle: RePEc:wil:wileco:2001-07
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    File URL: https://web.williams.edu/Economics/wp/gross_flows.pdf
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    More about this item

    Keywords

    gross international capital flows; asymmetricinformation; trading volume;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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