International Equity Flows and Returns: A Quantitative Equilibrium Approach

Martin Schneider, Rui Albuquerque and Gregory Bauer

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: Asymmetric information; Heterogenous investors; Asset pricing; International equity flows; International equity returns (search for similar items in EconPapers)
JEL-codes: F30 G12 G14 G15 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-bec, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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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 quantative equilibrium approach (2004)
Working Paper: International Equity Flows and Returns: A Quantitative Equilibrium Approach (2004)
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