We outline and test two theories of foreign direct investment based on capital market mispricing. The acirc;not;Scheap assetsacirc;not;? or acirc;not;Sfire-saleacirc;not;? theory considers FDI inflows as the purchase of undervalued host country assets, while the acirc;not;Scheap financial...

Foreign direct investment offers a rich laboratory in which to study the broader economic effects of securities market mispricing. We outline and test two mispricing-based theories of FDI. The quot;cheap assetsquot; or fire-sale theory views FDI inflows as the purchase of undervalued host...

Empirical evidence of imperfect integration across world capital markets suggests a role for cross-border arbitrage by multinationals. Consistent with multinational arbitrage as a determinant of foreign direct investment (FDI) patterns, we find that FDI flows increase sharply with source-country...