Differences of Opinion and International Equity Markets. (1st October 2016)

• Record Type: Journal Article
• Authors: Dumas, Bernard; Lewis, Karen K.; Osambela, Emilio
• Is Part Of: Review of financial studies. Volume 30:Number 3(2017:Mar.)
• Page Start: 750
• Page End: 800
• Publication Date: 2016-10-01
• Subjects: F23 -- F32 -- G11 -- G12 -- G15; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhw083
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract : 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 of domestic investors in the interpretation of home public signals affect 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. Received January 15, 2011; editorial decision May 16, 2016 by Editor Geert Bekaert.