Intereconomics

, Volume 29, Issue 3, pp 131–138 | Cite as

The internationalization of emerging stock markets

  • Peter K. Cornelius
Foreign Investment

Abstract

Stock markets in developing countries today account for about 7 per cent of world equity market capitalization, and this share is rising rapidly. Foreign investors have in the past often faced restrictive barriers to access to these emerging markets. A growing number of developing countries have now started to dismantle these barriers, however, resulting in an increasing interest by international portfolio managers in these emerging stock markets.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    World Institute for Development Economics Research: Foreign Portfolio Investment in Emerging Equity Markets, Helsinki 1990, p. 14.Google Scholar
  2. 2.
    Farida Khambata: Aleg Up the Ladder, in: The Banker, July 1993.Google Scholar
  3. 4.
    Michael G. Papaioannou and Lawrence K. Duke: The Internationalization of Emerging Equity Markets, in: Finance and Development, Vol. 30, No. 3 (September 1993), pp. 36–39.Google Scholar
  4. 5.
    Cf. World Institute of Development Economics Research, op. cit. Foreign Portfolio Investment in Emerging Equity Markets, Helsinki 1990, p. 14.Google Scholar
  5. 6.
    World Institute for Development Economics Research, op. cit., Foreign Portfolio Investment in Emerging Equity Markets, Helsinki 1990, p. 20.Google Scholar
  6. 7.
    For further details cf. Stuart Allen and Selina O’Connor: The Guide to World Equity Markets 1992. Euromoney Publications, London 1992.Google Scholar
  7. 8.
    Ali F. Darrat and Tarun K. Mukherjee: The Behavior of the Stock Market in a Developing Economy, in: Economics Letters, Vol. 22 (1987), pp. 273–278, here p. 273.Google Scholar
  8. 9.
    Cf. for example, Herbert G. Grubel: Internationally Diversified Portfolios: Welfare Gains and Capital Flows, in: The American Economic Review, Vol. 58 (1968), pp. 1299–1314; Haim Levy and Marshall Sarnat: International Diversification of Investment Portfolios, in: The American Economic Review, Vol. 60 (1970), pp. 668–675; Bruno Solnik: Why Not Diversity Internationally?, in: Financial Analyst, Vol. 30 (1974), pp. 48–54.Google Scholar
  9. 10.
    Warren Bailey and Rene Stulz: Benefits of International Diversification: the Case of Pacific Basin Stock Markets, in: Journal of Portfolio Management, 1990, pp. 57–61.Google Scholar
  10. 12.
    Bruno Solnik: Pacific Basin Stock Markets and International Diversification, in: S. Gho Rhee and Rosita P. Chang (eds.): Research on Pacific Basin Stock Markets, Amsterdam 1991, pp. 309–321.Google Scholar
  11. 13.
    Cf. also Mansoor Dailami and Michael Atkin: Stock Markets in Developing Countries. Key Issues and a Research Agenda, World Bank Working Paper WPS 515, Washington D.C. 1990; Peter K. Cornelius: A Note on the Informational Efficiency of Emerging Stock Markets, in: Weltwirtschaftliches Archiv (forthcoming).Google Scholar
  12. 14.
    Kenneth R. French and James Poterba: Investor Diversification and International Equity Markets, in: The American Economic Review, Vol. 81 (May 1991), pp. 222–226.Google Scholar
  13. 15.
    Farida Khambata, op. cit. ALeg Up the Ladder, in: The Banker, July 1993.Google Scholar
  14. 16.
    Cf. Campbell R. Harvey: The World Price of Covariance Risk, in: The Journal of Finance, Vol. 46 (1991), pp. 111–157. Black, for example, has shown that the world market portfolio will be efficient for neither foreign nor domestic investors in the presence of differential taxation of foreign investments. Cf. Fischer Black: International Capital Market Equilibrium with Investment Barriers, in: Journal of Financial Economics, Vol. 1 (1974), pp. 337–352. Errunza and Losq have examined a one-way barrier, which precludes domestic agents from investing in foreign assets, but allows foreign agents to freely invest in domestic markets. Cf. V. Errunza and E. Losq: International Asset Pricing under Mild Segmentation: Theory and Test, in: Journal of Finance, Vol. 40 (March 1986), pp. 105–124. As the authors have shown, such a restriction results in a higher return, or super premium, on foreign securities by foreign investors over the unrestricted equilibrium return. The impact of a legal restriction by the government that constrains the fraction of equities of local firms that can be owned by foreigners has been the subject of several studies, for example: C. S. Eun and S. Janakiramanan: A Model of International Asset Pricing with a Constrain on Foreign Equity Ownership, in: Journal of Finance, Vol. 41 (September 1986), pp. 897–914; and N. Bulent Gultekin, Mustafa N. Gultekin and Alessandro Penati: Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets, in: Journal of Finance, Vol. 44 (September 1989), pp. 849–869. These studies have generally shown that two different prices rule in the foreign securities market, reflecting the premium offered by the domestic investor over the price under no constraints and the discount demanded by the foreign investor.Google Scholar
  15. 17.
    Warren Bailey: US Money Supply Announcements and Pacific Rim Stock Markets: Evidence and Implications, in: Journal of International Money and Finance, Vol. 9 (1990), pp. 344–356.Google Scholar
  16. 18.
    Yan-Leung Cheung and Sui Choi Mak: The International Transmission of Stock Market Fluctuation between the Developed Markets and the Asian-Pacific markets, in: Applied Financial Economics, Vol. 2 (1992), pp. 43–47.Google Scholar
  17. 19.
    Peter K. Cornelius: Capital Controls and Market Segmentation of Emerging Stock Markets, in: Seoul Journal of Economics, Vol. 5 (1992), pp. 289–299.Google Scholar
  18. 20.
    Bruno Solnik: Pacific Basin Stock Markets… op. cit., Pacific Basin Stock Markets and International Diversification, in: S. Gho Rhee and Rosita P. Chang (eds.): Research on Pacific Basin Stock Markets, Amsterdam 1991, p. 320.Google Scholar
  19. 21.
    Mark P. Taylor and Ian Tonks: The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Controls, in: The Review of Economics and Statistics, Vol. 71 (May 1989), pp. 332–336.Google Scholar
  20. 22.
    Cf. Sushil Wadhwani: Are European Stockmarkets Converging?, in: Goldman Sachs Portfolio Strategy (October 1991).Google Scholar

Copyright information

© HWWA and Springer-Verlag 1994

Authors and Affiliations

  • Peter K. Cornelius
    • 1
  1. 1.International Monetary FundWashington, D.C.USA

Personalised recommendations