61 Pages Posted: 8 Aug 2006 Last revised: 28 Dec 2014
Date Written: September 1, 2008
This paper studies international equity markets when some investors have private information that is valuable for trading in many countries simultaneously. We use a dynamic model of equity trading to show that “global” private information helps understand US investors’ trading behavior and performance. In particular, the model predicts global return chasing — positive comovement of US investors’ net purchases with returns in many countries — which we show to be present in the data. Return chasing in our model can be due to superior performance of US investors, not inferior knowledge or naive trend-following. We also show that trades due to private information are strongly correlated across countries: a common “global” factor accounts for about half their variation.
Keywords: Private information, global private information, asymmetric information, portfolio choice, international equity flows and returns, home bias, return chasing
JEL Classification: F36, G12, G14, G15
Suggested Citation: Suggested Citation
Albuquerque, Rui A. and Bauer, Gregory H. and Schneider, Martin, Global Private Information in International Equity Markets (September 1, 2008). Journal of Financial Economics (JFE), Vol. 94, 2009. Available at SSRN: https://ssrn.com/abstract=922695 or http://dx.doi.org/10.2139/ssrn.922695
By Gur Huberman