Gross Capital Flows and Asymmetric Information

Tomas Dvorak ()
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Tomas Dvorak: Williams College

No 2001-07, Department of Economics Working Papers from Department of Economics, Williams College

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.

Keywords: gross international capital flows; asymmetricinformation; trading volume (search for similar items in EconPapers)
JEL-codes: F21 G15 (search for similar items in EconPapers)
Date: 2001-06
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Published in Journal of International Money and Finance, November 2003, v. 22, iss. 6, pp. 835-64

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