Global Private Information in International Equity Markets

This paper studies international equity markets when some investors have private information that is valuable for trading in many countries simultaneously. We use a dynamic model of equity trading to show that ldquo;globalrdquo; private information helps understand US investors' trading behavior and performance. In particular, the model predicts global return chasing mdash; positive comovement of US investors' net purchases with returns in many countries mdash; which we show to be present in the data. Return chasing in our model can be due to superior performance of US investors, not inferior knowledge or naive trend-following. We also show that trades due to private information are strongly correlated across countries: a common ldquo;globalrdquo; factor accounts for about half their variation