The Role of Domestic and Foreign Sentiment for Cross-Border Portfolio Flows

Justin Birru and Matthew Wynter
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Justin Birru: Ohio State U
Matthew Wynter: Stony Brook U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We show that sentiment influences the demand for foreign stocks, as identified by international portfolio flows between investors in the United States and investors in 44 other countries. We document two channels through which sentiment affects flows. First, inflows are higher to countries with higher sentiment. Second, higher sentiment in a given country is associated with lower outflows from that country to bilateral trade partners, suggesting that sentiment in one country can have spillover effects on demand for assets in other countries. The combined sentiment effects are associated with economically meaningful implications for net flows. Finally, we consider country closed-end funds and find evidence of pricing effects of sentiment.

JEL-codes: F30 F32 G11 G14 G15 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-ifn, nep-int and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-16

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