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Differences of Opinion and International Equity Markets

Author

Listed:
  • Bernard Dumas
  • Karen K. Lewis
  • Emilio Osambela
Abstract
We develop an international financial market model in which domestic and foreign residents differ in their beliefs about the information content in public signals. We determine how informational advantages by domestic investors in the interpretation of home public signals impact equity markets. We evaluate the ability of our 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. Their relationships with empirical differences-of-opinion proxies are consistent with the model.

Suggested Citation

  • Bernard Dumas & Karen K. Lewis & Emilio Osambela, 2011. "Differences of Opinion and International Equity Markets," NBER Working Papers 16726, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16726
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    References listed on IDEAS

    as
    1. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
    2. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-297, April.
    3. Lewis, K.K., 1996. "Consumption, Stock Returns, and the Gains from International Risk-Sharing," Weiss Center Working Papers 96-4, Wharton School - Weiss Center for International Financial Research.
    4. G. Andrew Karolyi, 2006. "The World of Cross-Listings and Cross-Listings of the World: Challenging Conventional Wisdom," Review of Finance, European Finance Association, vol. 10(1), pages 99-152.
    5. Lewis, Karen K., 2000. "Why do stocks and consumption imply such different gains from international risk sharing?," Journal of International Economics, Elsevier, vol. 52(1), pages 1-35, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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