Emeritus Professor of Finance
JEL codes ; F23 ; F32 ; G11 ; G12 ; G15; Q31617 ;
JOURNAL ARTICLE | Review of Financial Studies | 30 | March 2017
Differences of Opinion and International Equity Markets
The authors develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information content in public signals.The authors determine how informational advantages by domestic investors in the interpretation of home public signals affect equity markets.The authors evaluate the ability of that model to generate four international-finance anomalies: (i) the co-movement of returns and capital flows, (ii) home-equity preference, (iii) the dependence of firm returns on home and foreign factors, and (iv) abnormal returns around foreign firm cross-listing in the home market.The relationships with empirical differences-of-opinion proxies are consistent with the model.