International Equity Flows and Returns: A Quantitative Equilibrium Approach

Rui Albuquerque (), Gregory H. Bauer () and Martin Schneider ()

No 5159, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper reconsiders the role of foreign investors in developed country equity markets. It presents a quantitative model of trading that is built around two new assumptions about investor sophistication: (i) both the foreign and domestic populations contain investors with superior information sets; and (ii) these knowledgeable investors have access to both public equity markets and private investment opportunities. The model delivers a unified explanation for three stylized facts about US investors’ international equity trades: (i) trading by US investors occurs in waves of simultaneous buying and selling; (ii) US investors build and unwind foreign equity positions gradually; and (iii) US investors increase their market share in a country when stock prices there have recently been rising. The results suggest that heterogeneity within the foreign investor population is much more important than heterogeneity of investors across countries.

Keywords: asset pricing; asymmetric information; heterogenous investors; international equity flows; international equity returns (search for similar items in EconPapers)
JEL-codes: F30 G12 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-fin and nep-fmk
Date: 2005-08
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Related works:
Working Paper: International equity flows and returns: a quantitative equilibrium approach (2005)
Working Paper: International Equity Flows and Returns: A Quantitative Equilibrium Approach (2004)
Working Paper: International Equity Flows and Returns: A Quantitative Equilibrium Approach (2004)
Working Paper: International equity flows and returns: A quantitative equilibrium approach (2004)
Journal Article: International Equity Flows and Returns: A Quantitative Equilibrium Approach (2007)
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