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Does Foreign Information Predict the Returns of Multinational Firms Worldwide?

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  • Christian Finke
  • Florian Weigert

Abstract

We investigate whether value-relevant foreign information only gradually dilutes into stock prices of multinational firms worldwide. Using an international sample of firms from twenty-two developed countries, we find that a portfolio strategy based on firms’ foreign sales information yields future returns of more than 10% p.a. globally. The return spread due to foreign information is substantial across different geographical regions and cannot be explained by traditional risk factors, firm characteristics, and industry momentum. Our results are in line with limited attention of investors to foreign information being the main driver of this effect worldwide.

Suggested Citation

  • Christian Finke & Florian Weigert, 2017. "Does Foreign Information Predict the Returns of Multinational Firms Worldwide?," Review of Finance, European Finance Association, vol. 21(6), pages 2199-2248.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:6:p:2199-2248.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw070
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    References listed on IDEAS

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    1. Smajlbegovic, Esad, 2019. "Regional Economic Activity and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(3), pages 1051-1082, June.
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    Cited by:

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    3. Xin Wang & Haofei Zhang, 2023. "The cross‐predictability of industry returns in international financial markets," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 859-885, December.

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    More about this item

    Keywords

    Foreign information; Return predictability; Limited attention;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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