How Important Are Foreign Ownership Linkages for International Stock Returns?

Söhnke M. Bartram; John M. Griffin; Tae-Hoon Lim; David T. Ng

doi:10.1093/rfs/hhv030

Review of Financial Studies Vol. 28 No. 11 2015

How Important Are Foreign Ownership Linkages for International Stock Returns?

Söhnke M. Bartram¹; John M. Griffin²; Tae-Hoon Lim³; David T. Ng ⁴

¹ University of Warwick · ² The University of Texas at Austin · ³ Korea Institute for International Economic Policy · ⁴ Cornell University

Abstract

We derive a foreign ownership return as the weighted average return of foreign stocks that are connected to a stock through common ownership. The foreign ownership return is of similar economic significance as traditional country and industry factors in explaining international stock returns. It is not related to omitted fundamentals or wealth effects but shifts substantially around ADR and index listings when the investor habitat changes. A decomposition shows that the foreign ownership return is driven by active reallocations of global institutions as opposed to fund flows from end investors. Our findings have important implications for international portfolio diversification.

DOI: 10.1093/rfs/hhv030
Volume: 28
Issue: 11
Pages: 3036-3072
Language: en
Sources: openalex crossref

How Important Are Foreign Ownership Linkages for International Stock Returns?

Abstract

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