U.S. Equity Investment in Emerging Stock Markets |
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| Authors: | Tesar, Linda L. Werner, Ingrid M. |
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| Affiliation: | Linda L. Tear is with the Department of Economics at the University of California at Santa Barbara and the National Bureau of Economic Research. Ingrid M. Werner is with the Graduate School of Business at Stanford University, the Institute for International Economic Studies in Stockholm, and the National Bureau of Economic Research. This article was commissioned by the Debt and International Finance Division of the World Bank for its Conference on Portfolio Investment in Developing Countries, Washington, D.C., September 9–10, 1993. The authors thank Geert Bekaert and Stijn Claessens for their helpful comments, and Tasos Mastroyiannis, Jon Riddle, Patrick Rowland, and Michael Urias for their excellent research assistance. |
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| Abstract: | This article examines U.S. equity flows to emerging stock marketsfrom 1978 to 1991 and draws three main conclusions. First, despitethe recent increase in U.S. equity investment in emerging stockmarkets, the U.S. portfolio remains strongly biased toward domesticequities. Second, of the fraction of the U.S. portfolio thatis allocated to foreign equity investment, the share investedin emerging stock markets is roughly proportional to the shareof the emerging stock markets in the global market capitalizationvalue. Third, the volatility of U.S. transactions in emerging-marketequities is higher than in other foreign equities. The normalizedvolatility of U.S. transactions appears to be falling over time,however, and we find no relation between the volume of U.S.transactions in foreign equity and local turnover rates or volatilityof stock returns. |
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