Ashoka Mody, The World BankThis paper was initiated while Kinoshita was a consultant at the World Bank. The data for this paper were obtained through a special survey designed by Susmita Dasgupta, Ashoka Mody, and Sarbajit Sinha. Osamu Kawaguchi assisted in the preparation of the survey design and its Using a specially-designed survey of Japanese firms planning investments in Asia, this paper highlights the importance of privately-held information in making foreign investment decisions. Information from direct experience on operating conditions in a country is likely to be the most credible, but for investors entering a new country information signalled by others investing in that country proves of great value, leading possibly to cascading investments in countries. Publicly available information is also important, and largely complementary to private information. Perceptions of FDI policy are also complementary to private information, but policy is of little value to those who already invest in or perceive rivals to be active in a country. "...either he should discover the truth about them for himself or learn it from some one else; or if this is impossible, he should take the best and most irrefragable of human theories and make it the raft on which he sails through life. " Plato.

The tension in the air is as palpable as a high-stakes prize fight. In one corner, the finance professors — the proponents of stock market efficiency — argue that investors cannot outperform the market over time. In the opposing corner, the practitioners