How Important are Foreign Ownership Linkages for International Stock Returns?

Review of Financial Studies, Vol. 28 (11), November 2015, 3036–3072.

83 Pages Posted: 20 Dec 2014 Last revised: 30 Aug 2021

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

University of Warwick; Centre for Economic Policy Research (CEPR)

John M. Griffin

University of Texas at Austin - Department of Finance

Tae-Hoon Lim

Cornell University

David T. Ng

Johnson College of Business

Multiple version iconThere are 7 versions of this paper

Date Written: December 11, 2014

Abstract

We derive a foreign ownership return as the weighted average return of foreign stocks that are connected to a stock through common ownership. The foreign ownership return is of similar economic significance as traditional country and industry factors in explaining international stock returns. It is not related to omitted fundamentals or wealth effects, but shifts substantially around ADR and index listings when the investor habitat changes. A decomposition shows that the foreign ownership return is driven by active reallocations of global institutions as opposed to fund flows from end investors. Our finding has important implications for international portfolio diversification.

Keywords: Institutional ownership, asset management, portfolio diversification, international finance, comovement

JEL Classification: G3, F4, F3

Suggested Citation

Bartram, Söhnke M. and Griffin, John M. and Lim, Tae-Hoon and Ng, David T., How Important are Foreign Ownership Linkages for International Stock Returns? (December 11, 2014). Review of Financial Studies, Vol. 28 (11), November 2015, 3036–3072., Available at SSRN: https://ssrn.com/abstract=2540283 or http://dx.doi.org/10.2139/ssrn.2540283

Söhnke M. Bartram (Contact Author)

University of Warwick ( email )

Warwick Business School
Finance Group
Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)

HOME PAGE: http://go.warwick.ac.uk/sbartram/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

John M. Griffin

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-6621 (Phone)

HOME PAGE: http://www.jgriffin.info

Tae-Hoon Lim

Cornell University ( email )

Ithaca, NY 14853
United States

David T. Ng

Johnson College of Business ( email )

301G Warren Hall, Cornell University
Ithaca, NY 14850-1967
United States
6072550145 (Phone)

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