Differences of Opinion and International Equity Markets
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)
Board of Governors of the Federal Reserve System
April 12, 2016
INSEAD Working Paper No. 2016/24/FIN
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.
Number of Pages in PDF File: 70
Date posted: July 1, 2011 ; Last revised: April 12, 2016