Country funds and asymmetric information

This paper uses data on country funds to study the role of differential access to information on international investment. It shows that past changes in net asset values (NAVs) and discounts predict current country fund prices more commonly than prices and discounts predict NAVs. The price (NAV) adjustment coefficients are low and negatively correlated with the local (foreign) market variability-but not with the fund price (NAV) variability. These findings are consistent with the hypothesis of asymmetric information, according to which the holders of the underlying assets have move information about the local assets than the country fund holders do. Applications to currency crises and a theoretical model are also presented. Copyright (C) 2000 John Wiley & Sons, Ltd.