International Equity Flows and Returns: A Quantitative Equilibrium Approach

55 Pages Posted: 18 Aug 2005

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: August 2005

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 US investors' international equity trades: (i) trading by US investors occurs in waves of simultaneous buying and selling; (ii) US investors 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 (August 2005). CEPR Discussion Paper No. 5159. Available at SSRN: https://ssrn.com/abstract=785864

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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