|
on International Finance |
| By: | Michael Siemer (Board of Governors of the Federal Reserve System); Adrien Verdelhan (MIT Sloan); Francois Gourio (FRB Chicago) |
| Abstract: | In a large panel of 26 emerging countries over the last 40 years, aggregate stock market return volatilities, our measure of uncertainty, forecast capital flows. When the stock market return volatility increases, capital inflows decrease and capital outflows increase. We propose a simple decomposition of each country's market return volatility into two components: countries differ by their exposure to systematic volatility, measured by their uncertainty betas, and by their country-specific volatility. Capital inflows respond to both systematic and country-specific shocks to volatility, and they respond more in high uncertainty beta countries. These results are all statistically significant. A simple portfolio choice model illustrates the impact of uncertainty on gross capital flows: in the model, foreigners are exposed to expropriation risk. When the probability of expropriation increases, foreigners sell the domestic assets to the domestic investors, leading to a counter-cyclical home bias. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:880&r=all |
| By: | Finke, Christian; Weigert, Florian |
| Abstract: | We investigate whether value-relevant foreign information only gradually dilutes into stock prices of multinational firms worldwide. Using an international sample of firms from 22 developed countries, we find that a portfolio strategy based on firms' foreign sales information yields future returns of more than 10% p.a. globally. The profit of this trading strategy is substantial across different geographical regions and cannot be explained by traditional risk factors, firm characteristics, and industry momentum. Our results are in line with limited attention of investors being the main driver of this effect worldwide. |
| Keywords: | Foreign information, return predictability, limited attention |
| JEL: | G12 G14 G15 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2015:19&r=all |
| By: | Fuess, Roland; Ruf, Daniel |
| Abstract: | This paper uses a unique dataset to empirically test the implications of limited transparency in decentralized asset markets. We capture differences in the level of transparency as a linkage mechanism among international commercial real estate markets. This connectivity arises from the strategic interaction of informed and uninformed investors. Our identification strategy exploits the unique feature of spatial econometrics to analyze the transmission of learning externalities across segmented opaque markets. We find empirical evidence of cross-sectional dependence and implied co-movements among global real estate excess returns. Furthermore, we show that local shocks are amplified via spillover effects and feedback loops, which provide a potential source of instability in the international commercial property sector. |
| Keywords: | Commercial real estate, cross-sectional dependence, learning externalities, opaque markets, spatial econometrics, transparency risk |
| JEL: | C33 D82 D83 G15 R30 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2015:20&r=all |