NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Differences of Opinion and International Equity Markets

Bernard Dumas, Karen K. Lewis, Emilio Osambela

NBER Working Paper No. 16726
Issued in January 2011
NBER Program(s):   AP   IFM

We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information content in public signals. We determine how informational advantages by domestic investors in the interpretation of home public signals impact equity markets. We evaluate the ability of our model to generate four international finance anomalies: (i) the co-movement of returns and capital flows; (ii) home-equity preference; (iii) the dependence of firm returns on home and foreign factors; and (iv) abnormal returns around foreign firm cross- listing in the home market. Their relationships with empirical differences-of-opinion proxies are consistent with the model.

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This paper was revised on May 25, 2016

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Document Object Identifier (DOI): 10.3386/w16726

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