Do foreign purchases of U.S. stocks help the U.S. stock market? |
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Authors: | Radhamés A Lizardo André V Mollick |
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Institution: | 1. Cornell S.C. Johnson College of Business, Cornell University, USA;2. Judge Business School, Cambridge University, UK |
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Abstract: | This paper investigates the relationship between the U.S. S&P 500 stock market and purchases of U.S. corporation stocks by foreign investors. Estimations using monthly data from 1978:1 to 2008:7 under various methodologies show that, controlling for asset prices (interest rates and the yield curve) and inflation, purchases of U.S. stocks by foreign investors have a positive and statistically significant impact on the U.S. stock market performance. We also show that their relationship is time variant. In a global world, the demand-side variable captured by the foreign appetite for U.S. stocks attenuates the negative effects associated with the domestic forces. |
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