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The Dynamics of International Equity Market Expectations

Brennan, Michael J., Cao, H. Henry, Strong, Norman and Xu, Xinzhong 2005. The Dynamics of International Equity Market Expectations. Journal of Financial Economics 77 (2) , pp. 257-288. 10.1016/j.jfineco.2004.06.008

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Abstract

This paper develops a noisy rational expectations model of the way in which international investors adjust their expectations of asset payoffs in a given country in response not only to public information signals but also to private information signals whose precision differs across investors. The model predicts that the perceptions of investors in one country about the future market returns in another country are related differently to realized past returns depending on their informational disadvantage relative to other investors: the greater is that informational disadvantage, the greater is the change in perception associated with returns. The predictions are confirmed by monthly survey data of institutional money managers investing in developed markets from 1995 to 2000.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Additional Information: Home bias ; International portfolio flows ; Asymmetric information ; Rational expectations ; Foreign investor informational disadvantage
ISSN: 0304-405X
Last Modified: 18 Oct 2017 10:43
URI: http://orca-mwe.cf.ac.uk/id/eprint/2861

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