Characterizing Asymmetric Information in International Equity Markets

This paper studies international portfolio ßows of US investors to examine the information structure of international equity markets. Based on a model of portfolio choice with both public and private information, we propose new empirical measures of trades due to private information. We show that these trades help explain the cross section of international equity returns, after controlling for public information. We Þnd that such trades are highly correlated across countries. In particular, a common “global” factor accounts for about half of the variation in trades due to private information and can also be used to predict returns in many countries. The Þnding that a substantial portion of trades due to private information across countries contains the same common information challenges the conventional view that domestic investors have better private information about their home market than foreign investors. JEL ClassiÞcation: F36, G12, G14, G15.