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Everyone knows that US Stocks have much richer valuations than International (non-US) stocks. This is an interesting piece of (multi-variate) analysis on the top 1000 stocks to bucket out which factors are significant, and how much of each (significant) factor constitutes to the difference in valuations.
It turns out that place of listing is able to explain ~50% of the valuation gap, even bigger than the ~30% impact coming from quality. Of course, the result (correlation) doesn't tell us why (causation). Could it be because of better regulations, halo effects, simply more inflows into the US markets, or just a little bit of everything?
Anyways, liquidity begets more liquidity. Higher valuations begets even higher valuations. This is good empirical data to show founders/private equity GPs whom are playing the pricing game, that their best bet is to list in the US regardless of where you come from/or do business in.
Explaining International Valuations
Listing in the US offers a significant valuation premium
Were a larger percentage of the valuation gap explained by fundamentals, we’d expect such a gap to persist. But given that the valuation gap is primarily explained simply by the location of listing, we think there’s a strong reason to expect a convergence—and therefore to favor international over US-listed stocks, despite their terrible relative performance over the past decade.
https://us13.campaign-archive.com/?u=6dc...cfce328dc8
It turns out that place of listing is able to explain ~50% of the valuation gap, even bigger than the ~30% impact coming from quality. Of course, the result (correlation) doesn't tell us why (causation). Could it be because of better regulations, halo effects, simply more inflows into the US markets, or just a little bit of everything?
Anyways, liquidity begets more liquidity. Higher valuations begets even higher valuations. This is good empirical data to show founders/private equity GPs whom are playing the pricing game, that their best bet is to list in the US regardless of where you come from/or do business in.
Explaining International Valuations
Listing in the US offers a significant valuation premium
Were a larger percentage of the valuation gap explained by fundamentals, we’d expect such a gap to persist. But given that the valuation gap is primarily explained simply by the location of listing, we think there’s a strong reason to expect a convergence—and therefore to favor international over US-listed stocks, despite their terrible relative performance over the past decade.
https://us13.campaign-archive.com/?u=6dc...cfce328dc8
I am not a certified financial advisor and so nothing of what I say should be construed as financial advice. Please consult a certified financial advisor for advice instead.