Do different interpretations of the same information help explain the distinct stock holdings of foreign investors?
This paper proposes and tests a symmetric information-based explanation for different stock holdings between domestic and foreign investors. Building on Pastor (2000) and Li (2004), we posit that domestic and foreign investors interpret common information differently since they use their own home-country market portfolio as benchmark when evaluating the past performance of domestic stocks and adjusting their stock holdings accordingly. We hypothesize that the resulting difference in opinion about domestic stocks contributes to different domestic stock portfolios between the two investor groups. Using the Korean data which help us to rule out competing hypotheses, we find strong evidence for our hypothesis and also show that our results are independent of the trend-chasing behavior of foreign investors. Additionally, we find that the different interpretation of common information causes foreigners to avoid domestic stocks more than it increases the foreign demand for domestic stocks.
Foreign investors home bias different interpretation asymmetric information
Hyung Cheol Kang Dong Wook Lee Kyung Suh Park
Finance, the University of Seoul Finance, Korea University Business School
国际会议
广州
英文
1-41
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）