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Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices
Author(s) -
Henry Peter Blair
Publication year - 2000
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00219
Subject(s) - liberalization , stock market , equity (law) , economics , monetary economics , stock exchange , primary market , restricted stock , stock market bubble , equity capital markets , market depth , financial economics , business , international economics , finance , market economy , private equity , paleontology , horse , political science , law , biology
A stock market liberalization is a decision by a country's government to allow foreigners to purchase shares in that country's stock market. On average, a country's aggregate equity price index experiences abnormal returns of 3.3 percent per month in real dollar terms during an eight‐month window leading up to the implementation of its initial stock market liberalization. This result is consistent with the prediction of standard international asset pricing models that stock market liberalization may reduce the liberalizing country's cost of equity capital by allowing for risk sharing between domestic and foreign agents.