Does Foreign Information Predict the Returns of Multinational Firms Worldwide?
Review of Finance, Forthcoming
69 Pages Posted: 22 Sep 2015 Last revised: 28 Nov 2016
Date Written: October 28, 2016
We investigate whether value-relevant foreign information only gradually dilutes into stock prices of multinational firms worldwide. Using an international sample of firms from 22 developed countries, we find that a portfolio strategy based on firms' foreign sales information yields future returns of more than 10% p.a. globally. The return spread due to foreign information is substantial across different geographical regions and cannot be explained by traditional risk factors, firm characteristics, and industry momentum. Our results are in line with limited attention of investors being the main driver of this effect worldwide.
Keywords: Foreign information, return predictability, limited attention
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation