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Stock Market Liberalizations and the Repricing of Systematic Risk

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Author Info
Anusha Chari
Peter Blair Henry

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Abstract

When countries open their stock markets to foreign investors, firms that become eligible for purchase by foreigners (investible) are repriced according to the difference in the covariance of their returns with the local and world market. An investible firm whose return covariance with the local market exceeds that with the world market by 0.01 will experience a firm-specific revaluation of 3.4 percent. In contrast, the repricing of firms that remain off limits to foreign investors (non-investible) bears no significant relationship to differences in local and world covariances. These findings suggest that the CAPM has predictive power for the cross-sectional repricing of systematic risk when barriers to capital movements are removed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8265.

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Date of creation: May 2001
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Handle: RePEc:nbr:nberwo:8265

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F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Kim, E Han & Singal, Vijay, 2000. "Stock Market Openings: Experience of Emerging Economies," Journal of Business, University of Chicago Press, vol. 73(1), pages 25-66, January. [Downloadable!] (restricted)
  2. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June. [Downloadable!] (restricted)
  3. Lewis, Karen K., 2000. "Why do stocks and consumption imply such different gains from international risk sharing?," Journal of International Economics, Elsevier, vol. 52(1), pages 1-35, October. [Downloadable!] (restricted)
  4. Rene M. Stulz, 2000. "U.S. Banks, Crises, and Bailouts: From Mexico to LTCM," NBER Working Papers 7529, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Randall Morck & Bernard Yeung & Wayne Wu, 1999. "The Information Content of Stock Markets: Why do Emerging Markets have Synchronous Stock Price Movements?," William Davidson Institute Working Papers Series 44, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  6. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May. [Downloadable!] (restricted)
  7. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, 04. [Downloadable!] (restricted)
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  8. Tesar, Linda L., 1995. "Evaluating the gains from international risksharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 95-143, June. [Downloadable!] (restricted)
  9. Blanchard, Olivier & Rhee, Changyong & Summers, Lawrence, 1993. "The Stock Market, Profit, and Investment," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 115-36, February. [Downloadable!] (restricted)
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  10. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334. [Downloadable!] (restricted)
  11. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1989. "What Moves Stock Prices?," NBER Working Papers 2538, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Tesar, Linda L & Werner, Ingrid M, 1995. "U.S. Equity Investment in Emerging Stock Markets," World Bank Economic Review, Oxford University Press, vol. 9(1), pages 109-29, January.
  13. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December. [Downloadable!] (restricted)
  14. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Nandini Gupta & Kathy Yuan, 2003. "Financial Dependence, Stock Market Liberalizations, and Growth," William Davidson Institute Working Papers Series 2003-562, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Charles P. Himmelberg & R. Glenn Hubbard & Inessa Love, 2002. "Investment, protection, ownership, and the cost of capital," Research series 200205-6, National Bank of Belgium. [Downloadable!]
  3. Eva de Francisco, 2005. "Limited Participation, Income Distribution and Capital Account Liberalization," Computing in Economics and Finance 2005 454, Society for Computational Economics. [Downloadable!]
  4. Bill Francis & Iftekhar Hasan & Delroy Hunter, 2002. "Emerging market liberalization and the impact on uncovered interest rate parity," Working Paper 2002-16, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  5. Dahlquist, Magnus & Robertsson, Göran, 2001. "Foreigners Trading and Price Effects Across Firms," CEPR Discussion Papers 3033, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Himmelberg, Charles P. & Hubbard, R. Glenn & Love, Inessa, 2002. "Investor protection, ownership, and the cost of capital," Policy Research Working Paper Series 2834, The World Bank. [Downloadable!]
  7. Dahlquist, Magnus & Robertsson, Göran, 2001. "Foreigners´ Trading and Price Effects Across Firms," SIFR Research Report Series 1, Institute for Financial Research. [Downloadable!]
  8. Hali J. Edison & Francis E. Warnock, 2001. "A Simple Measure of the Intensity of Capital Controls," IMF Working Papers 01/180, International Monetary Fund. [Downloadable!]
    Other versions:
  9. Sara B. Holland & Francis E. Warnock, 2003. "Firm-level access to international capital markets: evidence from Chilean equities," International Finance Discussion Papers 753, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. G. Andrew Karolyi & Rene M. Stulz, 2002. "Are Financial Assets Priced Locally or Globally?," NBER Working Papers 8994, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Frenkel, Michael & Menkhoff, Lukas, 2003. "Are Foreign Institutional Investors Good for Emerging Markets?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-283, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
    Other versions:
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