Global Private Information in International Equity Markets

Rui Albuquerque (), Gregor H Bauer and Martin Schneider ()

No 5819, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies international equity markets when some investors have private information that is valuable for trading in many countries simultaneously. We use a dynamic model of equity trading to show that 'global' private information helps understand US investors’ trading behaviour and performance. In particular, the model predicts global return chasing - positive comovement of US investors’ net purchases with returns in many countries - which we show to be present in the data. Return chasing in our model can be due to superior performance of US investors, not inferior knowledge or naive trend-following. We also show that trades due to private information are strongly correlated across countries: a common 'global' factor accounts for about half their variation.

Keywords: asymmetric information; global private information; home bias; international equity flows and returns; portfolio choice; private information; return chasing (search for similar items in EconPapers)
JEL-codes: F36 G12 G14 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-fin
Date: 2006-09
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