Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152744
Authors: 
Albuquerque, Rui
Bauer, Gregory H.
Schneider, Martin
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 310
Abstract: 
This paper considers the role of foreign investors in developed-country equity markets. It presents a quantitative model of trading that is built around two new assumptions: (i) both the foreign and domestic investor populations contain investors of different sophistication, and (ii) investor sophistication matters for performance in both public equity 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 bursts of simultaneous buying and selling, (ii ) Americans 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.
Subjects: 
asset pricing
Asymmetric information
heterogenous investors
international
JEL: 
F30
G12
G14
G15
Document Type: 
Working Paper

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