Global Private Information in International Equity Markets

Authors:
  • RARui Albuquerque
    Rui Albuquerque
  • GBGregor H Bauer
    Gregor H Bauer
  • MSMartin Schneider
    Martin Schneider
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  • 1 January 2006
Abstract
This paper studies international equity markets when some investors have private information that is valuable for trading in many countries simultaneously. We use a dynamic model of equity trading to show that 'global' private information helps understand US investors’ trading behaviour and performance. In particular, the model predicts global return chasing - positive comovement of US investors’ net purchases with returns in many countries - which we show to be present in the data. Return chasing in our model can be due to superior performance of US investors, not inferior knowledge or naive trend-following. We also show that trades due to private information are strongly correlated across countries: a common 'global' factor accounts for about half their variation.
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