Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
NBER Working Papers and Publications
|January 2011||Differences of Opinion and International Equity Markets|
with Bernard Dumas, Karen K. Lewis: w16726
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.
Published: "Differences of Opinion and International Equity Markets," with K. K. LEWIS and E. OSAMBELA, Review of Financial Studies, 30 (2017), 750-800.