Information Diffusion in International Markets

Globalization has been a persistent phenomenon of the post-war period. The gross volume of cross-border capital flows has grown at an average of 25 percent a year, and trade in goods and services has also increased, albeit not as dramatically, but...

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Main Authors: Izquierdo, Alejandro, Morisset, Jacques, Olarreaga, Marcelo
Format: Policy Research Working Paper
Language:English
en_US
Published: World Bank, Washington, DC 2014
Subjects:
Online Access:http://documents.worldbank.org/curated/en/2003/04/2329625/information-diffusion-international-markets
http://hdl.handle.net/10986/18270
id okr-10986-18270
recordtype oai_dc
spelling okr-10986-182702021-04-23T14:03:41Z Information Diffusion in International Markets Izquierdo, Alejandro Morisset, Jacques Olarreaga, Marcelo ACCOUNTING ARBITRAGE BILATERAL TRADE CAPITAL FLOWS CONSUMERS CONTAGION CURRENCY CRISES DEVELOPED COUNTRIES DEVELOPMENT INDICATORS ECONOMETRICS ECONOMIC DEVELOPMENT ECONOMIC PERSPECTIVES ECONOMIC REVIEW ELASTICITIES EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EMPIRICAL STUDIES EQUATIONS EQUITY MARKETS EXOGENOUS VARIABLES EXPECTED VALUE EXPORTS FINANCIAL INTERMEDIARIES FINANCIAL MARKETS FUNCTIONAL FORMS GDP GDP PER CAPITA GLOBALIZATION IMPERFECT INFORMATION IMPORTS INDUSTRIAL DEVELOPMENT INFORMATION ASYMMETRIES INSTRUCTION INTERNATIONAL TRADE LIQUIDITY MACROECONOMICS MARKET INTEGRATION MERGERS POLICY RESEARCH PRIVATE INFORMATION PRODUCTIVITY SECURITIES SECURITIES MARKETS SPILLOVERS STOCK MARKETS TELECOMMUNICATION TERMS OF TRADE TRADE BARRIERS TRADE POLICIES TRANSACTION COSTS VALUATION WEALTH INFORMATION DISSEMINATION INTERNATIONAL MARKETS GLOBALIZATION CAPITAL FLOWS TRADE COSTS IMPORTS EXPORTS DATA COLLECTING WEALTH INFORMATION DISSEMINATION Globalization has been a persistent phenomenon of the post-war period. The gross volume of cross-border capital flows has grown at an average of 25 percent a year, and trade in goods and services has also increased, albeit not as dramatically, but at least twice as fast as world GDP over the past 20 years. Yet, consumers and investors continue to spend and hold a disproportionate share of their assets in local markets-the so-called home-bias has been emphasized by many recent empirical studies. For many researchers, this home bias reflects information asymmetries and the fact that acquiring information across international borders is relatively costly. The main objective of the authors is to identify channels through which information gets disseminated across international markets. They consider three potential channels through which information can affect import and foreign equity purchase decisions in 14 OECD countries. The first channel consists of information spillovers from the commercial to the financial markets and vice-versa. Financial investors and importers share common information, which is also frequently conveyed to them by the same source-banks or financial intermediaries. The second and third channels emphasize seller and buyer reputations in international markets. The seller reputation channel stresses the importance given by, for example, importers in the United States who are considering buying products from Italy to the experience that Canadian and Japanese importers may have accumulated on Italian exporters. The buyer reputation channel examines to what extent a foreign investor or trader seeks information on the reliability of the foreign buyer by assessing his reputation in other countries. While the last two channels are equally important in explaining bilateral import flows, buyer reputation appears to be of greater importance for equity flows in the sample. The authors argue that these three channels may help provide some insights about the recent episodes of contagion across markets and countries that occurred over the past decade. These information channels can create virtuous or vicious circles that may, in turn, lead to unexpected changes in investors' and traders' behaviors across markets. 2014-05-12T20:25:10Z 2014-05-12T20:25:10Z 2003-04 http://documents.worldbank.org/curated/en/2003/04/2329625/information-diffusion-international-markets http://hdl.handle.net/10986/18270 English en_US Policy Research Working Paper;No. 3032 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
en_US
topic ACCOUNTING
ARBITRAGE
BILATERAL TRADE
CAPITAL FLOWS
CONSUMERS
CONTAGION
CURRENCY CRISES
DEVELOPED COUNTRIES
DEVELOPMENT INDICATORS
ECONOMETRICS
ECONOMIC DEVELOPMENT
ECONOMIC PERSPECTIVES
ECONOMIC REVIEW
ELASTICITIES
EMPIRICAL ANALYSIS
EMPIRICAL EVIDENCE
EMPIRICAL STUDIES
EQUATIONS
EQUITY MARKETS
EXOGENOUS VARIABLES
EXPECTED VALUE
EXPORTS
FINANCIAL INTERMEDIARIES
FINANCIAL MARKETS
FUNCTIONAL FORMS
GDP
GDP PER CAPITA
GLOBALIZATION
IMPERFECT INFORMATION
IMPORTS
INDUSTRIAL DEVELOPMENT
INFORMATION ASYMMETRIES
INSTRUCTION
INTERNATIONAL TRADE
LIQUIDITY
MACROECONOMICS
MARKET INTEGRATION
MERGERS
POLICY RESEARCH
PRIVATE INFORMATION
PRODUCTIVITY
SECURITIES
SECURITIES MARKETS
SPILLOVERS
STOCK MARKETS
TELECOMMUNICATION
TERMS OF TRADE
TRADE BARRIERS
TRADE POLICIES
TRANSACTION COSTS
VALUATION
WEALTH INFORMATION DISSEMINATION
INTERNATIONAL MARKETS
GLOBALIZATION
CAPITAL FLOWS
TRADE
COSTS
IMPORTS
EXPORTS
DATA COLLECTING
WEALTH
INFORMATION DISSEMINATION
spellingShingle ACCOUNTING
ARBITRAGE
BILATERAL TRADE
CAPITAL FLOWS
CONSUMERS
CONTAGION
CURRENCY CRISES
DEVELOPED COUNTRIES
DEVELOPMENT INDICATORS
ECONOMETRICS
ECONOMIC DEVELOPMENT
ECONOMIC PERSPECTIVES
ECONOMIC REVIEW
ELASTICITIES
EMPIRICAL ANALYSIS
EMPIRICAL EVIDENCE
EMPIRICAL STUDIES
EQUATIONS
EQUITY MARKETS
EXOGENOUS VARIABLES
EXPECTED VALUE
EXPORTS
FINANCIAL INTERMEDIARIES
FINANCIAL MARKETS
FUNCTIONAL FORMS
GDP
GDP PER CAPITA
GLOBALIZATION
IMPERFECT INFORMATION
IMPORTS
INDUSTRIAL DEVELOPMENT
INFORMATION ASYMMETRIES
INSTRUCTION
INTERNATIONAL TRADE
LIQUIDITY
MACROECONOMICS
MARKET INTEGRATION
MERGERS
POLICY RESEARCH
PRIVATE INFORMATION
PRODUCTIVITY
SECURITIES
SECURITIES MARKETS
SPILLOVERS
STOCK MARKETS
TELECOMMUNICATION
TERMS OF TRADE
TRADE BARRIERS
TRADE POLICIES
TRANSACTION COSTS
VALUATION
WEALTH INFORMATION DISSEMINATION
INTERNATIONAL MARKETS
GLOBALIZATION
CAPITAL FLOWS
TRADE
COSTS
IMPORTS
EXPORTS
DATA COLLECTING
WEALTH
INFORMATION DISSEMINATION
Izquierdo, Alejandro
Morisset, Jacques
Olarreaga, Marcelo
Information Diffusion in International Markets
relation Policy Research Working Paper;No. 3032
description Globalization has been a persistent phenomenon of the post-war period. The gross volume of cross-border capital flows has grown at an average of 25 percent a year, and trade in goods and services has also increased, albeit not as dramatically, but at least twice as fast as world GDP over the past 20 years. Yet, consumers and investors continue to spend and hold a disproportionate share of their assets in local markets-the so-called home-bias has been emphasized by many recent empirical studies. For many researchers, this home bias reflects information asymmetries and the fact that acquiring information across international borders is relatively costly. The main objective of the authors is to identify channels through which information gets disseminated across international markets. They consider three potential channels through which information can affect import and foreign equity purchase decisions in 14 OECD countries. The first channel consists of information spillovers from the commercial to the financial markets and vice-versa. Financial investors and importers share common information, which is also frequently conveyed to them by the same source-banks or financial intermediaries. The second and third channels emphasize seller and buyer reputations in international markets. The seller reputation channel stresses the importance given by, for example, importers in the United States who are considering buying products from Italy to the experience that Canadian and Japanese importers may have accumulated on Italian exporters. The buyer reputation channel examines to what extent a foreign investor or trader seeks information on the reliability of the foreign buyer by assessing his reputation in other countries. While the last two channels are equally important in explaining bilateral import flows, buyer reputation appears to be of greater importance for equity flows in the sample. The authors argue that these three channels may help provide some insights about the recent episodes of contagion across markets and countries that occurred over the past decade. These information channels can create virtuous or vicious circles that may, in turn, lead to unexpected changes in investors' and traders' behaviors across markets.
format Publications & Research :: Policy Research Working Paper
author Izquierdo, Alejandro
Morisset, Jacques
Olarreaga, Marcelo
author_facet Izquierdo, Alejandro
Morisset, Jacques
Olarreaga, Marcelo
author_sort Izquierdo, Alejandro
title Information Diffusion in International Markets
title_short Information Diffusion in International Markets
title_full Information Diffusion in International Markets
title_fullStr Information Diffusion in International Markets
title_full_unstemmed Information Diffusion in International Markets
title_sort information diffusion in international markets
publisher World Bank, Washington, DC
publishDate 2014
url http://documents.worldbank.org/curated/en/2003/04/2329625/information-diffusion-international-markets
http://hdl.handle.net/10986/18270
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