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Three Essays On International Finance

Wynter, Matthew M
http://rave.ohiolink.edu/etdc/view?acc_num=osu1397128263

Abstract Details

2014, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation examines three distinct questions within the international portfolio choice literature. In chapter one, I study the change in the equity home bias during the financial panic of 2008. Using a sample of 45 countries, I document that the equity home bias fell. This is puzzling because theories of home bias and portfolio choice under uncertainty predict that during a crisis, the home bias should increase. With a novel methodology, I show that the active trades of investors, which increased the home bias, were subsumed by the passive valuation changes in their portfolio holdings, which decreased the home bias. I find evidence consistent with a role for portfolio rebalancing, increased information asymmetries, and the familiarity bias in portfolio allocations during the crisis. In chapter two, I analyze the impact of aggregate changes in U.S. demand for foreign stocks on U.S. firm-level stock prices. Separating U.S. net flows into outflows and inflows, I document that stocks with higher sensitivity to outflows earn significantly lower risk-adjusted returns. High outflows-beta firms tend to be smaller, younger, more volatile, and less globally diversified. Using firm-level, risk-adjusted returns, I find that the significantly negative premium is not subsumed by these characteristics or others commonly associated with misvaluation or limits to arbitrage. I show that the return on an outflows-mimicking portfolio is predictable and largely concentrated during periods when the demand for foreign equity is likely to fall, i.e., following reduced wealth, increased uncertainty, and reduced sentiment. The results are consistent with sensitivity to aggregate changes in U.S. demand for foreign stocks affecting firm-level U.S. stock returns. In chapter three, I study why U.S. investors’ foreign portfolio share nearly doubled from 1994 to 2010. Using a sample of monthly bilateral equity holdings between investors in the U.S. and 45 countries, I document that most of the increase occurred from U.S. investors passively allowing their foreign holdings to appreciate. Controlling for the passive change in the U.S. foreign portfolio share, I find that the portfolio reallocations of U.S. investors are consistent with changes in foreign wealth sending U.S. investors abroad and less so towards markets displaying increased uncertainty and higher misvaluation. I show that over this period, U.S. investors sold substantial portions of domestic equity to foreign investors; however, foreign investors in markets where misvaluation was more severe increased their share of the U.S. stock market at a relatively lower rate.
René Stulz, Ph.D. (Committee Chair)
Kewei Hou, Ph.D. (Committee Member)
Ingrid Werner, Ph.D. (Committee Member)
202 p.
Finance
Equity Home Bias, Home Bias, International Finance, International Portfolio Choice, Capital Flows, Foreign Portfolio Share, International Asset Pricing, International Asset Allocation, Financial Panic, Financial Crisis, Familiarity Bias, Active, Passive

Recommended Citations

Citations

  • Wynter, M. M. (2014). Three Essays On International Finance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1397128263

    APA Style (7th edition)

  • Wynter, Matthew. Three Essays On International Finance. 2014. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1397128263.

    MLA Style (8th edition)

  • Wynter, Matthew. "Three Essays On International Finance." Doctoral dissertation, Ohio State University, 2014. http://rave.ohiolink.edu/etdc/view?acc_num=osu1397128263

    Chicago Manual of Style (17th edition)

osu1397128263
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This open access ETD is published by The Ohio State University and OhioLINK.