Thinking Outside the Borders: Investors' Underreaction to Foreign Operations Information
62 Pages Posted: 23 Nov 2011 Last revised: 8 Jan 2019
Date Written: October 1, 2014
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Giving Content to Investor Sentiment: The Role of Media in the Stock Market
More than Words: Quantifying Language to Measure Firms' Fundamentals
By Paul C. Tetlock, Maytal Saar-tsechansky, ...
Is All that Talk Just Noise? The Information Content of Internet Stock Message Boards
By Murray Z. Frank and Werner Antweiler
Media Coverage and the Cross-Section of Stock Returns
By Lily H. Fang and Joel Peress
When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks
By Tim Loughran and Bill Mcdonald
Do Stock Market Investors Understand the Risk Sentiment of Corporate Annual Reports?
By Feng Li
Yahoo! For Amazon: Sentiment Parsing from Small Talk on the Web
By Sanjiv Ranjan Das and Mike Y. Chen
By Zhi Da, Joseph Engelberg, ...
By Joshua D. Coval and Tyler Shumway
The Impact of Credibility on the Pricing of Managerial Textual Content
By Elizabeth Demers and Clara Vega