Review of Economic Studies Vol. 74 No. 1 2007
International Equity Flows and Returns: A Quantitative Equilibrium Approach
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 about investor sophistication: (i) both the foreign and domestic populations contain investors with superior information sets; and (ii) these knowledgeable investors have access to both public equity markets and private investment opportunities. The model delivers a unified explanation for three stylized facts about U.S. investors' international equity trades: (i) trading by U.S. investors occurs in waves of simultaneous buying and selling; (ii) U.S. investors build and unwind foreign equity positions gradually; and (iii) U.S. 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.
- DOI
- 10.1111/j.1467-937x.2007.00412.x
- Volume
- 74
- Issue
- 1
- Pages
- 1-30
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref