Working Paper: NBER ID: w16677
Authors: Stephanie E. Curcuru; Charles P. Thomas; Francis E. Warnock; Jon Wongswan
Abstract: 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 year.
Keywords: International equity investment; Return-chasing behavior; Portfolio rebalancing; US investors
JEL Codes: F21; G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| portfolio reallocations (G11) | future returns (G17) |
| US investors increase portfolio weights on countries (G15) | countries subsequently experience strong performance (O57) |
| active changes in portfolio weights (X_it) (G11) | past returns (G17) |