International Finance Discussion Papers (IFDP)
September 2006
The Monetary Origins of Asymmetric Information in International Equity Markets
Gregory H. Bauer and Clara Vega
Abstract:
Existing studies using low-frequency data have found that macroeconomic shocks contribute little to international stock market covariation. However, these papers have not accounted for the presence of asymmetric information where sophisticated investors generate private information about the fundamentals that drive returns in many countries. In this paper, we use a new microstructure data set to better identify the effects of private and public information shocks about U.S. interest rates and equity returns. High-frequency private and public information shocks help forecast domestic money and equity returns over daily and weekly intervals. In addition, these shocks are components of factors that are priced in a model of the cross section of international returns. Linking private information to U.S. macroeconomic factors is useful for many domestic and international asset pricing tests.
Full paper (screen reader version)Keywords: Private Information, International Equity Returns, Monetary Policy, Foreign Exchange Rates, Exchange Traded Funds
PDF: Full Paper
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