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 by using their own home-country market portfolio as benchmark when evaluating the past performance of domestic stocks and adjusting their stock holdings. 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 allow us to rule out competing hypotheses, we find strong evidence for our hypothesis. 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.
Keywords: Foreign investors; home bias; different interpretation; asymmetric information,
JEL classification: G11; G12; G15
학술대회/행사
학술대회안내
[2008년 제 4차] Do different interpretations of the same informatio
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2008-12-11