The Role of Domestic and Foreign Sentiment for Cross-Border Portfolio Flows

Fisher College of Business Working Paper No. 2023-03-016

Charles A. Dice Center Working Paper Series 2023-16

47 Pages Posted: 31 May 2023

See all articles by Justin Birru

Justin Birru

Ohio State University (OSU) - Department of Finance

Matthew Wynter

Stony Brook University, College of Business

Date Written: May 31, 2023

Abstract

We show that sentiment influences the demand for foreign stocks, as identified by international portfolio flows between investors in the United States and investors in 44 other countries. We document two channels through which sentiment affects flows. First, inflows are higher to countries with higher sentiment. Second, higher sentiment in a given country is associated with lower outflows from that country to bilateral trade partners, suggesting that sentiment in one country can have spillover effects on demand for assets in other countries. The combined sentiment effects are associated with economically meaningful implications for net flows. Finally, we consider country closed-end funds and find evidence of pricing effects of sentiment.

Keywords: sentiment, foreign sentiment, international finance, capital flows

JEL Classification: F30, F32, G11, G14, G15

Suggested Citation

Birru, Justin and Wynter, Matthew, The Role of Domestic and Foreign Sentiment for Cross-Border Portfolio Flows (May 31, 2023). Fisher College of Business Working Paper No. 2023-03-016, Charles A. Dice Center Working Paper Series 2023-16, Available at SSRN: https://ssrn.com/abstract=4465280 or http://dx.doi.org/10.2139/ssrn.4465280

Justin Birru (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Matthew Wynter

Stony Brook University, College of Business ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

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