재무연구 제 권 호 (2009년 5월)
Asian Review of Financial Research, Vol., No..
pp.710~750
pp.710~750
Do different interpretations of the same information help explain the distinct stock holdings of foreign investors?
Hyung Cheol Kang Respectively, Assistant Professor of Finance, the University of Seoul
Dong Wook Lee Assistant Professor of Finance, Korea University Business School
Kyung Suh Park Professor of Finance, Korea University Business School
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.
Hyung Cheol Kang
Dong Wook Lee
Kyung Suh Park
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
