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Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire; good news travels slow

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  • Mondria, Jordi
  • Wang, Xin
  • Wu, Thomas

Abstract

In this paper, we decompose attention allocation into two components – the familiar and the surprising – with opposite implications for US purchases of foreign stocks. On the one hand, familiarity-induced attention leads to an increase in US holdings of foreign equities. On the other hand, surprise-induced attention is associated with net selling of foreign stocks because US investors tend to pay more attention to negative than to positive economic surprises from foreign countries. Our findings suggest that information asymmetries between locals and non-locals are more pronounced when it comes to good news, with information regarding bad news being relatively symmetric.

Suggested Citation

  • Mondria, Jordi & Wang, Xin & Wu, Thomas, 2021. "Familiarity and Surprises in International Financial Markets: Bad news travels like wildfire; good news travels slow," Journal of International Money and Finance, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:jimfin:v:115:y:2021:i:c:s0261560621000395
    DOI: 10.1016/j.jimonfin.2021.102390
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    More about this item

    Keywords

    US purchases of foreign stocks; Attention allocation; Asymmetric information; Geography; Economic surprises;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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