Foreign Speculators and Emerging Equity Markets

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.     

Equity market liberalization and corporate governance

Equity market liberalizations open up domestic stock markets to foreign investors. A puzzle in the literature is why developing countries exhibit relatively small financial impacts associated with liberalizations. We use cross-firm variation in corporate governance at the time of the official liberalization of the equity market in Korea to test whether governance can explain the extent to which firms benefit when countries liberalize. The results show that better-governed firms experience significantly greater stock price increases upon equity market liberalization. Following the liberalization in Korea, foreign ownership in firms with strong corporate governance was significantly higher than that in firms with weak governance. Better-governed firms also exhibit higher rates of physical capital accumulation after liberalization.     

经济全球化背景下的日本金融监管体制改革

金融监管的理念及监管体制顺应经济发展要求而不断地演变。在金融全球化背景下,日本逐步形成了监管权高度集中却又不失灵活性的金融监管体制,监管体制改革是政府与金融体系博弈的结果。在经历2008年国际金融危机后,实践证明日本的金融监管体制改革是有效的。中国在今后的金融全球化过程中可以供鉴日本金融监管体制改革的经验。     

Stock market development under globalization: Whither the gains from reforms?

Over the past decades, many countries have implemented significant reforms (including financial liberalization, privatization, and regulatory and supervisory improvements) to foster domestic capital market development. Despite these policies, the performance of capital markets in several countries has been disappointing. To understand the effects of reforms, we study the impact of six capital market reforms on domestic stock market development and internationalization. We find that reforms tend to be followed by increases in domestic market capitalization and trading. But reforms are also followed by an increase in the share of activity in international equity markets, with potential negative spillover effects.     

Financial liberalization,market structure and credit penetration

This paper shows that the effects of financial liberalization on the credit market of a small and capital constrained economy depend on the market structure of domestic banks prior to liberalization. Specifically, under perfect competition in the domestic credit market prior to liberalization, liberalization leads to lower domestic interest rates, in turn leading to increased credit penetration. However, when the initial market structure is one of imperfect competition, liberalization can lead to the exclusion of less wealthy entrepreneurs from the credit market. This provides a rationale for the mixed empirical evidence concerning the effects of liberalization on access to credit in developing markets. Moreover, the analysis provides new insights into the consequences of foreign lenders’ entry into developing economies.     

Economic and political liberalizations

This paper studies empirically the effects and the interactions of economic and political liberalizations. Economic liberalizations are measured as reforms that increase the scope of the market. Political liberalizations correspond to the event of becoming a democracy. Using difference-in-difference estimation, we study the effects on economic performance, macroeconomic policy and structural policies. Our main contribution is the analysis of the joint effects of both liberalizations, and the finding that the sequence of reforms matters. Countries that first liberalize the economy and then become democracies do much better than countries that pursue the opposite sequence, in almost all dimensions.     

Size matters: The impact of financial liberalization on individual firms

We attempt to answer the following questions: What are the revaluation effects and the impact on performance, volatility, and return correlation from stock market liberalization in emerging markets? These questions have been studied extensively at the market level but not at the firm level. Our results show significantly different impact of stock market liberalization across firms. Large firms tend to exhibit large revaluation effects, insignificant change in performance, large declines in volatility, and insignificant change in correlation from liberalization. Small firms show small revaluation effects, improved performance, smaller decline in volatility and decreases in correlation after liberalization.     

Stock market liberalization and innovation

We investigate the effect of stock market liberalization on technological innovation. Using a sample of 20 economies that experience stock market liberalization, we find that these economies exhibit a higher level of innovation output after liberalization and that this effect is disproportionately stronger in more innovative industries. The relaxation of financial constraints, enhanced risk sharing between domestic and foreign investors, and improved corporate governance are three plausible channels that allow stock market liberalization to promote innovation. Finally, we show that technological innovation is a mechanism through which stock market liberalization affects productivity growth and therefore economic growth. Our paper provides new insights into the real effects of stock market liberalization on productivity growth and the economy.     

资本账户开放对企业投资效率的影响研究

依据2001—2017年95个国家的上市企业数据,考量资本账户开放对企业投资效率的作用。结果显示：资本账户开放能提高企业投资效率,缓解投资不足,抑制过度投资;机制检验表明,资本账户开放通过提高市场竞争、缓解融资约束以及提高风险承担水平三个渠道提高企业投资效率。异质性检验显示,流入方向的资本账户开放对企业投资效率的提升更大,资本账户开放主要提高了金融市场发展程度高的国家、外部融资依赖度高的行业以及高杠杆率企业的投资效率。鉴于此,建议有序开放资本账户,加快金融市场建设,积极融入全球资本市场发展。     

Market integration and currency risk in Asian emerging markets

Most of the Asian emerging stock markets started to liberalize their markets in 1990s. In this paper, I examine whether those markets have become integrated with world stock market since the 1990s by estimating and testing a dynamic version of international CAPM (ICAPM) in the absence of purchasing power parity (PPP) using a parsimonious multivariate GARCH-in-Mean (MGARCH-M) approach. I also investigate to what extent the liberalization process has affected the cost of capital and price volatility for each market. The empirical results show that Philippines was segmented from the world stock market before its liberalization date, but no evidence of market segmentation is found for the other five markets (India, Korea, Malaysia, Taiwan, and Thailand) before their liberalization dates. However, all six markets have become integrated after opening up their markets to foreign investors. In addition, the estimated risk premia are lower after the liberalization, indicating that the liberalization process has reduced the cost of capital for their domestic firms. Moreover, there is no evidence of extra market volatility introduced by capital market liberalization, and on the contrary, the markets have become more stabilized through the liberalization process.     

Foreign Share, Insurance Density, and Penetration: An Analysis of the International Life Insurance Market

Recent trends toward liberalization and deregulation have sparked significant interest in the topic of international insurers' participation in foreign markets. This research develops a profile of foreign national market characteristics that attract international life insurer participation and additionally, empirically assesses the value that international participation has to the host market. Characteristics that are found to be statistically significant with respect to international participation include high levels of trade liberalization and/or low insurer market share concentration, high levels of national wealth, and high levels of government expenditure on social security retirement benefits. With respect to the benefits such participation provides, we see that the presence of international life insurers share positive relationships with both life insurance consumption and the magnitude of the role life insurance plays within the broader national economy of those host markets.     

Firm characteristics and the impact of emerging market liberalizations

We provide a firm level analysis of the impact of capital market liberalization in 18 emerging markets. Consistent with models of international asset pricing, we find that firms’ stock returns increase during liberalization and that a majority of firms have lower mean returns and lower dividend yields after liberalization. We also find that emerging market firms have increased exposure to the world market and decreased exposure to the home market following liberalization. These changes in returns and exposures support the predictions of theoretical international asset pricing models. We also test and find support for the importance of size, local risk, foreign exchange risk, and cross-listing status in explaining the cross-section of changes in returns.     

Causal relations among stock returns and macroeconomic variables in a small,open economy

We investigate to what extent important results on relations among stock returns and macroeconomic factors from major markets are valid in a small, open economy by utilizing the multivariate vector autoregressive (VAR) approach on Norwegian data. Unlike many previous studies, which use a different methodology on other European markets, we establish several significant links. Consistent with US and Japanese findings, real interest rate changes affect both stock returns and inflation, and the stock market responds accurately to oil price changes. On the other hand, the stock market shows a delayed response to changes in domestic real activity.     

房地产金融属性的表现及经济含义:以美国房地产市场为例

随着金融自由化及经济资本化的深入,房地产金融属性的增强成为以美国为代表的全球房地产市场发展最大的特点。房地产的异质性被金融属性抹平,而波动的同步性增强,全球房地产市场首次同步繁荣,甚至开始脱离实体经济而自我膨胀。房地产金融属性的增强,使其更容易产生繁荣-萧条式的大幅波动。因此,需适当控制房地产金融属性。     

Are stock and real estate markets integrated? An empirical study of six Asian economies

Rising asset prices spurred by Asia's emerging economy have drawn much attention recently. This study examines one source of growth patterns in asset prices by analyzing the integration relationship between stock markets and real estate markets in Asia. Six economies are selected for empirical analysis: China, Hong Kong, Japan, Singapore, South Korea, and Taiwan. Results show that stock markets are integrated with real estate markets in Japan, and partially integrated with real estate markets in China, Hong Kong, and Taiwan. This implies that these two investment vehicles are substitutable in China, Hong Kong, Japan, and Taiwan, and provide diversification potential for investment portfolios in South Korea and Singapore. Examining the timing of market changes, we found the real estate market leading the stock market in some countries, and the stock market leading the real estate market in others. We conclude that stock and real estate markets show a variety of inter-relationships depending on economic and political policy environments.     

Agenda for a new monetary reform

The thrust of this article is that once more the time has come for a broad debate on domestic and international monetary order and on the role and the rules governing the functioning of financial markets in the modern market economy. We have to define an agenda and seek a consensus for a new monetary reform that will take into account both the positive and negative lessons learned from more than twenty years of experience with liberalization, deregulation and privatization in the financial sector, with flexible exchange rates and international monetary instability. In today's world economy there is an especially dangerous contrast between, on the one hand virtually total globalization of financial markets, and the fixation of monetary policy on narrow national objectives on the other hand. The article lists eight major items that ought to be considered in this debate: (1) the adoption of common rules necessary in a global market economy, (2) the need to return to a true international monetary order, (3) redefining and strengthening the role of central banks, (4) examining the dangers of a primarily short-term finance driven globalization, (5) extending the scope of the concept of price instability beyond the domestic price index, (6) dealing with the problem of artificial risk creation in financial markets and establish a more equitable distribution of the costs of risks, (7) reconsider the current distribution between earning on financial assets and other income and counteract the deflationary bias in the current system, (8) redefine monetary and financial order that is compatible with modern information technologies, rather than lagging behind the information revolution. The article does not offer set solutions for all these issues. Its conclusion is, however, that without such a debate and a consensus on a balanced new approach, there is a real threat of a backlash, the threat of losing the advantages of liberalization and globalization and of a return to increased monetary and economic nationalism and to excessive government intervention and control.     

STOCK MARKET OPENNESS AND MARKET QUALITY: EVIDENCE FROM THE SHANGHAI–HONG KONG STOCK CONNECT PROGRAM

We study the impact of capital market openness on high-frequency market quality in China. The Shanghai–Hong Kong Stock Connect program (SHHKConnect) opens China's stock market to foreign investors and offers a natural experiment to investigate this question. Using a difference-in-differences approach, we find that market liberalization leads to lower quoted spread, lower effective spread, lower market depth, and higher short-term volatility. Our findings imply that opening the markets to more sophisticated foreign investors is associated with higher competition and more cross-market arbitrage activities, narrowing the spread and reducing liquidity providers’ profits, but increasing the price impact and short-term volatility of connected stocks.     

美联储利率承诺的宏观经济效应

作为金融危机后美联储非常规货币政策的重要手段之一,利率承诺对美国宏观经济变化的影响颇受关注。本文选取美国2001年1月至2011年8月的月度数据,以2008年12月为分界点,采用VAR模型实证检验了美联储非常规货币政策实施前后利率承诺政策对金融市场和实体经济的影响。研究结果表明:(1)零利率承诺缩短了金融市场对基准利率变动响应的时滞,但作用持续期明显缩短,其中股票市场和商业房地产市场的响应尤为明显;(2)零利率承诺政策有利于提升消费者信心,并抑制通货紧缩;(3)零利率承诺措施对实体经济的影响要大于对金融市场的影响。     

Forms of Foreign Investment Liberalization and Risk in Emerging Stock Markets

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.     

THE ROLE OF ACCOUNTING INFORMATION IN STOCK MARKET LIBERALIZATION: EVIDENCE FROM KOREA

Stock market liberalization is a decision by a country’s government to allow foreigners to buy securities in that country’s capital market. This study examines how the liberalization of the Korean stock market affected stock price behavior and changed the role of accounting information for investment decisions. The Korean stock market opened its door to foreign investment in 1991. Prior to this, market inefficiencies, such as the superfluous co-movement of stock prices with industry or market indices or investment based on rumor and speculation, were widespread. Since the opening of the stock market to foreigners, a more rational pricing behavior has emerged. This setting provides a unique opportunity to investigate how stock price behavior has changed with market liberalization and what was the role of accounting information in this process. Our results indicate that the co-movement behavior of stock prices by industry decreased and stock price differentiation based on individual firm characteristics increased after market liberalization. The results also show that the explanatory power of accounting numbers increased after market liberalization. Overall, the results imply that foreign investors contributed to the improvement of market efficiency with the opening up of capital markets in Korea. We believe that our results provide useful evidence to other capital markets that are in a similar situation.