Differences of Opinion and International Equity Markets

Review of Financial Studies 30(3): 750–800, 2017

AFA 2011 Denver Meetings Paper

70 Pages Posted: 13 Mar 2010 Last revised: 17 Apr 2017

See all articles by Bernard Dumas

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

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: March 31, 2016

Abstract

We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information content in public signals. We determine how informational advantages by domestic investors in the interpretation of home public signals impact equity markets. We evaluate the ability of our model to generate four international finance anomalies: (i) the co-movement of returns and capital flows; (ii) home-equity preference; (iii) the dependence of firm returns on home and foreign factors; and (iv) abnormal returns around foreign firm cross-listing in the home market. Their relationships with empirical differences-of-opinion proxies are consistent with the model.

Keywords: Heterogeneous beliefs, capital flows, home-equity preference, cross-listing, international CAPM, international finance

JEL Classification: G11, G12, G15

Suggested Citation

Dumas, Bernard and Lewis, Karen Kay and Osambela, Emilio, Differences of Opinion and International Equity Markets (March 31, 2016). Review of Financial Studies 30(3): 750–800, 2017, AFA 2011 Denver Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1570168 or http://dx.doi.org/10.2139/ssrn.1570168

Bernard Dumas (Contact Author)

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Karen Kay Lewis

University of Pennsylvania - Finance Department ( email )

The Wharton School
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215-898-7637 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Emilio Osambela

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States

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