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International equity flows and returns: a quantitative equilibrium approach

Author

Listed:
  • Rui Albuquerque

    (Carol Simon Hall, University of Rochester, Rochester, NY 14627)

  • Gregory H. Bauer

    (Carol Simon Hall, University of Rochester, Rochester, NY 14627)

  • Martin Schneider

    (Department of Economics at NYU, 269 Mercer St., 7th floor, New York, NY 10003)

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.

Suggested Citation

  • Rui Albuquerque & Gregory H. Bauer & Martin Schneider, 2005. "International equity flows and returns: a quantitative equilibrium approach," International Finance 0508006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0508006
    Note: Type of Document - pdf; pages: 73
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asymmetric information; heterogenous investors; asset pricing; international equity flows; international equity returns;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • 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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