Differences of Opinion and International Equity Markets

71 Pages Posted: 1 Feb 2011

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: January 2011

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.

Suggested Citation

Dumas, Bernard and Lewis, Karen Kay and Osambela, Emilio, Differences of Opinion and International Equity Markets (January 2011). NBER Working Paper No. w16726, Available at SSRN: https://ssrn.com/abstract=1752785

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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 )

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National Bureau of Economic Research (NBER)

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Emilio Osambela

Board of Governors of the Federal Reserve System ( email )

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United States

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