How Important are Foreign Ownership Linkages for International Stock Returns?

Research, Hong Kong Institute for Monetary and Financial

doi:10.2139/ssrn.2069678

Cited by 15 publications

(13 citation statements)

References 71 publications

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“…For example, I have drawn on research indicating how the positions held by index funds, specialists, insurance companies, inattentive investors, limit‐order submitters, and others play a special role in asset price dynamics, because of slow moving capital, beyond the role they would play in a classical setting in which every investor stands ready at all times to equate marginal rates of substitution across consumption and all types of investments. Additional evidence of the effect on asset price dynamics of specific‐investor positions has been offered by Greenwood (2005b), Bekaert, Harvey, and Lundblad (2007), Bartram, Griffin, and Ng (2010), Jotikasthira et al (2009), Chaisurote (2008), and Lou (2009). Models based on imperfect search are especially natural for dealer‐intermediated and OTC markets.…”

Section: Discussionmentioning

confidence: 93%

Presidential Address: Asset Price Dynamics with Slow‐Moving Capital

Duffie

2010

The Journal of Finance

738

318

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I describe asset price dynamics caused by the slow movement of investment capital to trading opportunities. The pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade, such as search costs for trading counterparties or time to raise capital by intermediaries. I discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions, which subsided afterward. After presenting examples of price reactions to supply shocks in normal market settings, I offer a simple illustrative model of price dynamics associated with slow-moving capital due to the presence of inattentive investors.I ADDRESS THE IMPLICATIONS for asset price dynamics of the apparent slow movement of investment capital to trading opportunities. The arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets, for example an electronic limit-order-book market for equities, or by months in other markets, such as that for catastrophe risk insurance. Accordingly, prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital (and thus risk-bearing capacity) that is immediately available to absorb a shock on short notice. Such a price impact is substantially reversed over time as additional capital becomes available. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement, such as search costs for trading * Darrell

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Section: Discussionmentioning

confidence: 93%

Presidential Address: Asset Price Dynamics with Slow‐Moving Capital

Duffie

2010

The Journal of Finance

738

318

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“…Ongena, Peydró, and van Horen () use detail firm‐, bank‐, and bank‐firm‐level data and find that foreign ownership and liquidity transmitted the recent crisis to the eastern and central European countries. In contrast, Rose and Spiegel () and Lane and Milesi‐Ferretti () do not find any role of financial linkages, in general, in transmitting the crisis of 2007 to 2009.…”

Section: Related Literaturementioning

confidence: 87%

Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity

Kalemli‐Özcan¹,

Papaioannou²,

Peydró³

2013

The Journal of Finance

273

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“…Moreover, individual countries tend to have non-negligible weights and can distort different indexes when 5 Several papers study the importance of benchmarks, focusing primarily on the performance evaluation of mutual funds relative to their benchmarks, in particular, on whether active management pays (Lehmann and Modest, 1987;Sharpe, 1992;Wermers, 2000;Cremers and Petajisto, 2009;Sensoy, 2009;Busse et al, 2014;Cremers et al, 2016). A related literature focuses on how benchmark redefinitions affect stock returns, pricing, and liquidity (Harris and Gurel, 1986;Shleifer, 1986;Chen et al, 2004;Barberis et al, 2005;Greenwood, 2005;Hau et al, 2010;Hau, 2011;Wooley, 2011, 2016;Claessens and Yafeh, 2012;Faias et al, 2012;Bartram at al., 2015;Chang et al, 2015). 6 The extent to which fund portfolios are linked to their benchmarks depends on several factors, including the manager's risk aversion and the correlation among the assets in the benchmark portfolio (Roll, 1992;Brennan, 1993;Disyatat and Gelos, 2001).…”

Section: Introductionmentioning

confidence: 99%

International asset allocations and capital flows: The benchmark effect

Raddatz

Schmukler

Williams

2017

Journal of International Economics

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Benchmark indexes have become important in financial markets for portfolio investment. In this paper, we study how international equity and bond market indexes impact asset allocations, capital flows, asset prices, and exchange rates across countries. We use unique monthly microlevel data of benchmark compositions and mutual fund investments during 1996-2014. We find that movements in benchmarks appear to have important effects on equity and bond mutual fund portfolio allocations, including passive and active funds. The effects persist after controlling for time-varying industry-level factors, country-specific effects, and macroeconomic fundamentals. Changes in benchmarks not only impact asset allocations, but also capital flows, abnormal returns in aggregate stock and bond prices, and exchange rates. These systemic effects occur not just when the benchmark changes are announced, but also later, when they become effective. By impacting country allocations, benchmarks explain apparently counterintuitive movements in capital flows and asset prices, as well as contagion effects.

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How Important are Foreign Ownership Linkages for International Stock Returns?

Cited by 15 publications

References 71 publications

Presidential Address: Asset Price Dynamics with Slow‐Moving Capital

Presidential Address: Asset Price Dynamics with Slow‐Moving Capital

Financial Regulation, Financial Globalization, and the Synchronization of Economic Activity

International asset allocations and capital flows: The benchmark effect

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