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Foreign Speculators and Emerging Equity Markets
Author(s) -
Bekaert Geert,
Harvey Campbell R.
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 - 10.1111/0022-1082.00220
Subject(s) - speculation , equity capital markets , equity (law) , capital market , monetary economics , emerging markets , economics , cost of capital , liberalization , private equity secondary market , capital control , business , equity capital , volatility (finance) , financial economics , capital flows , private equity , finance , market economy , political science , law , incentive
We propose a cross‐sectional time‐series model to assess the impact of market liberalizations in emerging equity markets on the cost of capital, volatility, beta, and correlation with world market returns. Liberalizations are defined by regulatory changes, the introduction of depositary receipts and country funds, and structural breaks in equity capital flows to the emerging markets. We control for other economic events that might confound the impact of foreign speculators on local equity markets. Across a range of specifications, the cost of capital always decreases after a capital market liberalization with the effect varying between 5 and 75 basis points.