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Forms of Foreign Investment Liberalization and Risk in Emerging Stock Markets
Author(s) -
Hargis Kent
Publication year - 2002
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/1475-6803.00002
Subject(s) - liberalization , foreign direct investment , foreign portfolio investment , diversification (marketing strategy) , international economics , volatility (finance) , equity (law) , emerging markets , monetary economics , latin americans , economics , stock market , business , financial economics , market economy , open ended investment company , finance , return on investment , macroeconomics , paleontology , linguistics , philosophy , horse , marketing , production (economics) , biology , political science , law
Abstract I examine the effect of different forms of foreign investment liberalization on risk in emerging equity markets, including international cross‐listings and closed‐end country funds, and in the domestic equity market as foreign investment restrictions are eliminated. I find that in Latin American markets volatility declines significantly with different forms of foreign investment liberalization, and in Asian markets volatility does not increase significantly. Volatility is driven by domestic factors in South America, but the transmission of volatility from the United States to Mexico increases after liberalization. The market risk exposure increases in Argentina after liberalization, in Chile with an index of American Depositary Receipts, and in Thailand with greater foreign ownership, reducing the diversification benefits of these markets.