Differences of Opinion and International Equity Markets

70 Pages Posted: 1 Jul 2011 Last revised: 12 Apr 2016

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: April 12, 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.

Suggested Citation

Dumas, Bernard and Lewis, Karen K. and Osambela, Emilio, Differences of Opinion and International Equity Markets (April 12, 2016). INSEAD Working Paper No. 2016/24/FIN. Available at SSRN: https://ssrn.com/abstract=1876447 or http://dx.doi.org/10.2139/ssrn.1876447

Bernard Dumas (Contact Author)

INSEAD ( email )

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HOME PAGE: http://www.insead.fr/~dumas/

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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Philadelphia, PA 19104
United States
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 )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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