Global Private Information in International Equity Markets
Rui A. Albuquerque
Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Gregory H. Bauer
Bank of Canada
November 15, 2006
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 behavior 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.
Number of Pages in PDF File: 54
Keywords: Private information, global private information, asymmetric information, portfolio choice, international equity flows and returns, home bias, return chasing
JEL Classification: F36, G12, G14, G15working papers series
Date posted: August 8, 2006
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