International Equity Flows and Returns: A Quantitative Equilibrium Approach

Review of Economic Studies Vol. 74, 2007

42 Pages Posted: 30 Dec 2014  

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Gregory H. Bauer

Bank of Canada

Martin Schneider

Independent

Multiple version iconThere are 3 versions of this paper

Date Written: May 12, 2006

Abstract

This paper reconsiders the role of foreign investors in developed country equity markets. It presents a quantitative model of trading that is built around two new assumptions about investor sophistication: (i) both the foreign and domestic populations contain investors with superior information sets; and (ii) these knowledgeable investors have access to both public equity markets and private investment opportunities. The model delivers a unified explanation for three stylized facts about U.S. investors’ international equity trades: (i) trading by U.S. investors occurs in waves of simultaneous buying and selling; (ii) U.S. investors build and unwind foreign equity positions gradually; and (iii) U.S. investors increase their market share in a country when stock prices there have recently been rising. The results suggest that heterogeneity within the foreign investor population is much more important than heterogeneity of investors across countries.

Keywords: Asymmetric information, heterogeneous investors, asset pricing, international equity flows, international equity returns

JEL Classification: F30, G12, G14, G15

Suggested Citation

Albuquerque, Rui A. and Bauer, Gregory H. and Schneider, Martin, International Equity Flows and Returns: A Quantitative Equilibrium Approach (May 12, 2006). Review of Economic Studies Vol. 74, 2007. Available at SSRN: https://ssrn.com/abstract=2543287

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Gregory H. Bauer

Bank of Canada

234 Laurier Street
Ottawa, Ontario K1A 0G9
Canada

Martin Schneider

Independent ( email )

No Address Available

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