Abstract

http://ssrn.com/abstract=1876447
 
 

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Differences of Opinion and International Equity Markets


Bernard Dumas


INSEAD; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Karen K. Lewis


University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Emilio Osambela


Carnegie Mellon University - David A. Tepper School of Business

July 1, 2011

INSEAD Working Paper No. 2011/77/FIN

Abstract:     
We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information in economic signals. Similar to models of asymmetric information, we consider how informational advantages by domestic investors about local output impacts equity markets. In contrast to these models, however, all information is publicly available, but domestic investors are better equipped to understand the information in local news. We show that our model can help explain four standard international pricing anomalies: (i) home equity preference; (ii) the co-movement of returns and international capital flows; (iii) the dependence of firm returns on local and foreign factors; and (iv) abnormal returns around foreign firm cross-listing in the local market.

Number of Pages in PDF File: 57

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Date posted: July 1, 2011  

Suggested Citation

Dumas, Bernard and Lewis, Karen K. and Osambela, Emilio, Differences of Opinion and International Equity Markets (July 1, 2011). INSEAD Working Paper No. 2011/77/FIN. Available at SSRN: http://ssrn.com/abstract=1876447 or http://dx.doi.org/10.2139/ssrn.1876447

Contact Information

Bernard Dumas (Contact Author)
INSEAD ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 60 72 49 92 (Phone)
+33 1 60 72 40 45 (Fax)
HOME PAGE: http://www.insead.fr/~dumas/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Karen Kay Lewis
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-7637 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Emilio Osambela
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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References:  48
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