International Equity Flows and Returns: A Quantitative Equilibrium Approach

52 Pages Posted: 18 May 2004

See all articles by Rui A. Albuquerque

Rui A. Albuquerque

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

Gregory H. Bauer

University of Rochester - Simon School

Martin Schneider

Independent

Multiple version iconThere are 3 versions of this paper

Date Written: July 2005

Abstract

This paper considers the role of foreign investors in developed-country equity markets. It presents a quantitative model of trading that is built around two new assumptions: (i) both the foreign and domestic investor populations contain investors of different sophistication, and (ii) investor sophistication matters for performance in both public equity and private investment opportunities. The model delivers a unified explanation for three stylized facts about US investors' international equity trades: (i) trading by US investors occurs in bursts of simultaneous buying and selling, (ii) Americans build and unwind foreign equity positions gradually and (iii) US 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, heterogenous 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 (July 2005). European Central Bank (ECB) Research Paper Series, Forthcoming. Available at SSRN: https://ssrn.com/abstract=472424

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

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

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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

Gregory H. Bauer

University of Rochester - Simon School ( email )

Rochester, NY 14627-0107
United States

Martin Schneider

Independent ( email )

No Address Available

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