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Characterizing Asymmetric Information in International Equity Markets

  • Rui Albuquerque

    (Simon School of Business, University of Rochester)

  • Gregory Bauer

    (Bank of Canada)

  • Martin Schneider

    (New York University)

This paper studies the international portfolio flows of US investors to examine the information structure of international equity markets. We use an empirical model of portfolio flows with both public and private information to extract measures of trades due to private information. We find that such trades are highly correlated across countries. In particular, a common 'global' factor accounts for about half of the variation in trades due to private information. We show that the global factor helps explain the cross section of international equity returns, after controlling for public information. The finding that a substantial portion of trades due to private information across countries contains the same common information challenges the conventional view that domestic investors have better private information about their home market than foreign investors.

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Paper provided by EconWPA in its series International Finance with number 0405005.

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Date of creation: 06 May 2004
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Handle: RePEc:wpa:wuwpif:0405005
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