Information and Cross-Border Equity Holdings

47 Pages Posted: 21 Mar 2008 Last revised: 25 Nov 2008

See all articles by Mark S. Seasholes

Mark S. Seasholes

ASU WP Carey School of Business

Vicentiu Covrig

California State University, Northridge - Department of Finance, Financial Planning and Insurance

Sonia G. Jimenez-Garcès

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

Patrice C. Fontaine

Eurofidai (CNRS)

Date Written: March 14, 2008

Abstract

This paper studies, both theoretically and empirically, dispersion in cross-border equity holdings. We propose a rational expectations equilibrium model in which agents have information about asset specific and/or common components of stocks' payoffs. The model produces closed-form solutions for asset prices and investor holdings (positions). A numerical analysis can generate home bias levels similar to those found in existing studies as well as reverse home bias (i.e., investors from one country overweigh stocks from another country). The last section of the paper analyzes cross-border mutual fund holdings of 5,781 stocks from 21 developed countries. We create a proxy variable for the degree of asset specific information about a stock and another proxy for the degree of common component information. Double sorting stocks using our information proxies produces ownership dispersion similar to that implied by the model. In regression analysis, our information proxies explain holding levels even after including variables that have previously been linked to home bias.

Keywords: Information Asymmetry, REE Models, Home Bias

JEL Classification: D82, G11, G12, G15

Suggested Citation

Seasholes, Mark S. and Covrig, Vicentiu and Jimenez-Garcès, Sonia G. and Fontaine, Patrice C., Information and Cross-Border Equity Holdings (March 14, 2008). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1107807 or http://dx.doi.org/10.2139/ssrn.1107807

Mark S. Seasholes (Contact Author)

ASU WP Carey School of Business ( email )

Dept of Finance, BAC 501
400 E. Lemon St.
Tempe, AZ 85287-3906
United States

Vicentiu Covrig

California State University, Northridge - Department of Finance, Financial Planning and Insurance ( email )

Northridge, CA 91330-8379
United States

Sonia G. Jimenez-Garcès

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG) ( email )

150 rue de la Chimie, BP47
GRENOBLE CEDEX, 38040
France

Patrice C. Fontaine

Eurofidai (CNRS) ( email )

150, rue de la Chimie - EUROFIDAI UMS CNRS 2748
UGA domaine universitaire
Grenoble Cedex 9, 38058
France

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