Asymmetric Information or Asymmetric Reputation? A Theory on Why Foreigners Earn So Much in a Small Open Emerging Market*

What is it about?

When you buy or sell some stocks, nobody pays attention to you. However, when Warren Buffet buy or sell the same stocks, everybody pays attention to him or the stocks he is trading. This phenomenon is stronger in the markets where there are no or less renowned traders such as Buffet or George Soros. Emerging markets are good examples where domestic informed traders such as domestic institutional traders are not considered true informed traders. In these markets, Buffet or Buffet-like traders such as foreign institutional traders are often followed by many noise traders such as individual traders. Thus, often, stock price determinations are heavily affected by their reputation or names, not by their true quality of information on stocks.

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