Thinking Outside the Borders: Investors' Underreaction to Foreign Operations Information

62 Pages Posted: 23 Nov 2011 Last revised: 8 Jan 2019

See all articles by Xing Huang

Xing Huang

Washington University in St. Louis - Olin Business School

Date Written: October 1, 2014

Abstract

I use industry-level returns in foreign markets to examine the hypothesis that value-relevant foreign information slowly diffuses into the stock prices of U.S. multinational firms. A trading strategy that exploits foreign information generates abnormal returns of 0.8% monthly. I find that the market responds more slowly in periods with lower media coverage of foreign news and to information from more linguistically and culturally distant countries. These results suggest that both investors’ inattention and lack of understanding of foreign information slow the incorporation of new information into prices. I further separate these two mechanisms by examining market responses
to earnings surprises.

Keywords: market efficiency, limited attention, gradual information diffusion, multinational firms, industry momentum

JEL Classification: G02, G14, G15

Suggested Citation

Huang, Xing, Thinking Outside the Borders: Investors' Underreaction to Foreign Operations Information (October 1, 2014). Review of Financial Studies, Vol. 28, 2015. Available at SSRN: https://ssrn.com/abstract=1963648 or http://dx.doi.org/10.2139/ssrn.1963648

Xing Huang (Contact Author)

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
319
Abstract Views
1,561
rank
98,123
PlumX Metrics