Do international markets overreact? Event study: International market reaction to U.S. local news events

This event study surveys the relationship between the returns of 26 international markets and the U.S. Using local events experienced in the U.S., I measure the reaction of international markets to major U.S. political, economic, environmental, and national security events. I document that international markets show an under-reaction to positive local events in the U.S. and an over-reaction to negative local events in the U.S., especially when the events are unexpected. The economic factors could not these findings. The empirical findings support the influence of U.S. local events in the international scale and show how it effects investor sentiments in other markets.