Discussion Paper Details

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Title: Global Private Information in International Equity Markets

Author(s): Rui Albuquerque, Gregor H Bauer and Martin Schneider

Publication Date: September 2006

Keyword(s): asymmetric information, global private information, home bias, international equity flows and returns, portfolio choice, private information and return chasing

Programme Area(s): Financial Economics

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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Bibliographic Reference

Albuquerque, R, Bauer, G and Schneider, M. 2006. 'Global Private Information in International Equity Markets'. London, Centre for Economic Policy Research.