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Working Paper
Cross-border returns differentials
Were the U.S. to persistently earn substantially more on its foreign investments ("U.S. claims") than foreigners earn on their U.S. investments ("U.S. liabilities"), the likelihood that the current environment of sizeable global imbalances will evolve in a benign manner increases. However, using a monthly dataset on the foreign equity and bond portfolios of U.S. investors and the U.S. equity and bond portfolios of foreign investors, we find that the returns differential for portfolio securities is near zero, far smaller than previously reported. Examining all U.S. claims and liabilities ...
Working Paper
The Performance of International Equity Portfolios
This paper evaluates the performance of U.S. investors' portfolios in the equities of over 40 countries over a 25-year period. We find that these portfolios achieved a significantly higher Sharpe ratio than foreign benchmarks, especially since 1990. We uncover three potential reasons for this success. First, U.S. investors abstained from momentum trading and instead sold past winners. Second, conditional performance tests provide no evidence that the superior (unconditional) performance owed to private information, suggesting that the successful exploitation of publicly available information ...
Working Paper
U.S. international equity investment and past prospective returns
Counter to extant stylized facts, using newly available data on country allocations in U.S. investors' foreign equity portfolios we find that (i) U.S. investors do not exhibit returns-chasing behavior, but, consistent with partial portfolio rebalancing, tend to sell past winners; and (ii) U.S. investors increase portfolio weights on a country's equity market just prior to its strong performance, behavior inconsistent with an informational disadvantage. Over the past two decades, U.S. investors' foreign equity portfolios outperformed a value-weighted foreign benchmark by 160 basis points per ...
Working Paper
Firm-level access to international capital markets: evidence from Chilean equities
High growth, liquid Chilean firms have greater relative weights in U.S. equity portfolios, but the most important determinant of a firm's portfolio weight is whether it is listed on a U.S. exchange. Cross-listing does not, however, appear to have permanent benefits: Weights in U.S. portfolios of firms that cross-listed in the mid-1990s increased at the expense of firms that cross-listed earlier. Put another way, firms appear to be able to access international capital at the time of the cross-listing, but this access may well be short-lived.
Working Paper
Why do U.S. cross-listings matter?
This paper investigates the underlying determinants of home bias using a comprehensive sample of U.S. investor holdings of foreign stocks. We document that U.S. cross-listings are economically important, as U.S. ownership in a foreign firm roughly doubles upon cross-listing in the United States. We explore the cross-sectional variation in this "cross-listing effect" and show that increases in U.S. investment are largest in firms from weak accounting backgrounds and in firms that are otherwise informationally opaque, indicating that U.S. investors value the improvements in disclosure ...
Working Paper
International capital flows and U.S. interest rates
Foreign flows have an economically large and statistically significant impact on long-term interest rates. Controlling for various macroeconomic factors we estimate that had there been no foreign flows into U.S. bonds over the past year, the 10-year Treasury yield would currently be 150 basis points higher; even a step-down to average inflows would imply an increase of 105 basis points. The impact of the headline-making foreign official flows?a relatively small subset of total foreign accumulation of U.S. bonds?is also significant but markedly smaller. Our results are robust to a number of ...
Working Paper
The declining volatility of U.S. employment: was Arthur Burns right?
This paper attempts to add to the understanding of changes in the magnitude of business cycle fluctuations by examining disaggregated employment data. Specifically, we use a stochastic variance approach on monthly employment data for the 1946-1996 period to highlight two stylized facts of aggregate U.S. employment - greater volatility in recessions than expansions and reduced volatility since the early 1980s. These patterns are not, however, apparent in each sector of the economy. Asymmetric volatility is only evident in manufacturing and trade; other sectors, such as construction or the ...
Working Paper
U.S. international equity investment
U.S. investors are the largest group of international equity investors in the world, but to date conclusive evidence on which types of foreign firms are able to attract U.S. investment is not available. Using a comprehensive dataset of all U.S. investment in foreign equities, we find that the single most important determinant of the amount of U.S. investment a foreign firm receives is whether the firm cross-lists on a U.S. exchange. Correcting for selection biases, cross-listing leads to a doubling (or more) in U.S. investment, an impact greater than all other factors combined. We also show ...
Working Paper
Home bias and high turnover reconsidered
It is a stylized fact of international finance that foreign equities are underweighted (the home bias) but overtraded (the high turnover). Since stylized facts drive research, theoretical models are now developed to explain the puzzling coexistence of home bias and high turnover, first presented in Tesar and Werner (1995), and researchers now dismiss transaction costs as a plausible explanation of home bias. I show, however, that part of the puzzle--very high turnover rates on foreign equity portfolios--is based on inaccurate estimates of cross-border holdings. Revised estimates of holdings ...
Working Paper
Look at me now: the role of cross-listing in attracting U.S. investors
We use a comprehensive 1997 survey to examine U.S. investors' preferences for foreign equities. We document a variety of firm characteristics that can influence U.S. investment, but the most important determinant is whether the stock is cross-listed on a U.S. exchange. Our selection bias-corrected estimates imply that firms that cross-list can increase their U.S. holdings by 8 to 11 percent of their market capitalization, roughly doubling the amount held without cross-listing. All else equal, we find that firms experience smaller increases in U.S. shareholdings upon cross-listing if they are ...