Identifying bubbles in Latin American equity markets: Phillips-Perron-based tests and linkages

The identification of periods of price exuberance in equity markets is of great interest to policy makers and financial investors. In this paper, we identify financial bubble periods within the major equity markets in Latin America. We use the recently developed recursive Augmented Dickey-Fuller methods and propose similar recursive procedures based on Phillips-Perron. We find that conditional on bubbles in the S&P 500, there are strong links between bubble episodes across equity markets in Latin America. In addition, the financial bubble periods in Latin America begin earlier and last longer than bubble periods in the United States during the 2008 financial crisis. Price bubbles were identified prior to the establishment of the Integrated Latin American Market (MILA).     

Sector level cost of equity in African financial markets

This paper assesses the effectiveness of Liu (2006) metrics in measuring illiquidity within a multifactor CAPM pricing model. Costs of equity are estimated using this model for the major sectors within Africa's larger equity markets: Morocco, Tunisia, Egypt, Kenya, Nigeria, Zambia, Botswana and South Africa. In all countries, the cost of equity is found to be highest in the financial sector and lowest in the blue chip stocks of Tunisia, Morocco, Namibia and South Africa. At an aggregate level, Nigeria and Zambia have the highest cost of capital.     

Latin American financial markets

Harvey Arbeláez and Reid Click. 2005. Latin American Financial Markets: Developments in Financial Innovations (Vol. 5). Amsterdam: Elsevier JAI. 445 pages. ISBN: 0‐7623‐1163‐0.     

Clustering in emerging equity markets

We consider pairwise tail behavior of return series for identifying the most important emerging markets clusters. Pairs of markets belonging to the same group present similar type and strength of interdependence during stressful times, represented by a common copula and a statistically equivalent measure of tail dependence. By collapsing data from d markets in to a group we overcome the difficult problem of finding their (higher dimensional) d-variate distribution. Results may help portfolio managers to deal with risk due to co-movements within clusters. We provide examples on how this can be done. Our study contributes to the discussion about the international association among stock markets during turbulent periods, and does not confirm the intuition that the observed association between extremes should be credited to linkages to leading markets. The study also confirms the importance of stock selection, particularly among the non-dominant stocks, instead of holding market-value weighed portfolios of stocks from countries within the same region.     

Private equity exits in emerging markets

Using deal level data from 2733 private equity (PE) deals from 35 emerging markets, we find that PE fund managers have a higher probability of successful exits in countries with better business and legal environments. We also find that they are able to mitigate the potential costs associated with inefficient and corrupt business environments to increase the probability of exits by IPOs in countries with higher levels of corruption. Moreover, we find that market shocks in the developed markets result in a negative ripple effect as the probability of successful exits, especially by way of IPOs, decreases in emerging markets.     

Investing in Asia's emerging equity markets

Asian equity markets have been hot for some time and they show no dramatic signs of cooling. The economies of the region have moved towards greater economic and financial integration while opening their capital markets to foreigners. Attracted by strong economies, credible reforms and further intentions of liberalization, global investors have made significant investments. However, the stability promised by a financially strong Japan is diminishing, and the region as a whole faces a variety of political and financial challenges.     

Average skewness in global equity markets

This paper examines the predictive power of average skewness, defined as the average of monthly skewness values across stocks, documented by the prior literature for US market returns in an international setting. First, we confirm the validity of the results in the original study and show that the intertemporal relation between average skewness and aggregate returns becomes weaker in an alternative sample period. Second, when we repeat the analysis in 22 developed non-US markets, we find that average skewness has no robust predictive power for future market returns. The loss of forecasting power in the international sample does not depend on the method used to calculate average skewness or the regression specification and is supported by additional out-of-sample tests and subsample analysis.     

Currency risk in emerging equity markets

The paper develops an international capital asset-pricing model (ICAPM), which includes foreign currency risk, and examines the impact of capital market liberalisation on the pricing of risks. It applies the model to data from Pacific Basin financial markets and finds substantial evidence that not only currency risk is priced in both pre- and post-liberalisation periods, but the model is superior to one which does not include currency risk. This evidence suggests that an international capital asset-pricing model, which omits currency risk, will be misspecified. Furthermore, the results imply that since currency risk is priced and investors are compensated for bearing such risk they should not be discouraged by more flexible exchange rate regimes from investing in emerging markets.     

International portfolio diversification: US and Central European equity markets

This paper examines the short- and long-term relationships between the US stock market and three Central European markets. Low short-term correlations between these markets and the US are found. Application of the Johansen cointegration procedure indicates that there is no long-term relationship. The Granger-causality test does reveal a causality running from the Hungarian to the Polish market, but none with the US. Overall, the results suggest that US investors can obtain benefits from international diversification into these markets.     

The advent of private equity in Latin America

As an investment banker in London, the author witnessed the massive run-up in Latin American public equities during the early 1990s and began to consider the potential for adapting the European model of development capital to Latin America. The author and a small number of other investors began looking beyond the public equity boom, recognizing that the biggest returns had already been made by local entrepreneurs who had entered the market early. Following in the steps of the local entrepreneurs who had been investing in and turning around local companies for years, the author and other investors established investment funds and sought out privately owned Latin American companies that were either poorly capitalized or mismanaged. In a matter of four years, foreign and indigenous pools of funds dedicated to private, unquoted investments in Latin America has grown from near zero to an estimated $1.5 billion. And the pool continues to grow. The author tracks this investment phenomenon and assesses the prospects for these and future Latin American funds, in light of the economic and political stabilization of many Latin American countries and the ambitious infrastructure development programs across the region.     

International competition in Latin American telecommunications markets

Current market liberalization and reforms in Latin America are attracting a great deal of interest by global telecommunications companies and investors. This article focuses on recent liberalizations and reforms in the telecommunications markets of Chile, Argentina, Mexico, and Venezuela. The article reviews the winning bids for these markets 'and analyzes the strategic alliances of investors, global telecommunications companies, and local investors. The article concludes with an analysis of the experience to date in opening Latin American telecommunication markets to free competition and speculates on future developments in this sector. © 1993 John Wiley & Sons, Inc.     

拉丁美洲农业利用外国直接投资的实践及启示

拉美农业利用外国直接投资(FDI)的实践表明,外国直接投资在促进拉美农业发展的同时,也给拉美农业带来了诸如被跨国公司支配、转移不适宜技术、造成单一的农业生产结构、环境破坏和劳动力失业等一系列社会经济问题.文章针对拉美农业利用外国直接投资的教训,提出我国农业利用外国直接投资必须遵循的原则.     

Interdependence of international equity variances: Evidence from East Asian markets

This paper investigates the interdependence of volatility in six East Asian markets. We first model the returns in a VAR-BEKK framework to obtain the conditional variances, and then apply the vector-autoregressive model (VAR) to the six-market variances. The results of VAR estimation show that the interdependence of equity market conditional variances is high. The Japanese market, while being the most exogenous and the least susceptible to volatility stimuli from other markets, is the most influential in transmitting volatility to the other East Asian markets.     

Latin America's colonial legacy: The law and its relationship to economic development

This study explores the extent to which Latin America's failure to embrace a system of laws and regulations generally viewed as conducive to capital formation and the broad creation of wealth may be an important factor impairing economic development. The argument here is that the region's adherence to a legal system based on civil law is a factor contributing to Latin America's ongoing lack of economic progress. A composite measure of economic freedom served as the basis for a two‐group discriminant analysis of the civil law countries of Latin America and common law countries. The objective was to test for and explain any statistically significant between‐group differences in levels of economic freedom. © 2006 Wiley Periodicals, Inc.     

Liquidity and stock returns in emerging equity markets

Using data for 27 emerging equity markets for the period January 1992 through December 1999, we document the behavior of liquidity in emerging markets. We find that stock returns in emerging countries are positively correlated with aggregate market liquidity as measured by turnover ratio, trading value and the turnover–volatility multiple. The results hold in both cross-sectional and time-series analyses, and are quite robust even after we control for world market beta, market capitalization and price-to-book ratio. The positive correlation between stock returns and market liquidity in a time-series analysis is consistent with the findings in developed markets. However, the positive correlation in a cross-sectional analysis appears to be at odds with market microstructure theory that has been empirically supported by studies on developed markets. Our findings regarding the cross-sectional relation between stock returns and liquidity is consistent with the view that emerging equity markets have a lower degree of integration with the global economy.     

Labor markets in Latin America: a look at the supply-side

This work asks whether there is a supply-side story to be told about labor market outcomes in Latin America. We present stylized facts about the connection between the demographic transition and changes in education (the size and quality of the labor force), with labor supply, inequality, and unemployment. The main conclusion is that the neglected topics of demographics and education improve our understanding of the overall decline in employment, the changing pattern of unemployment, and the rise in wage inequality. By adding them to the well-established demand and institutional factors behind these outcomes, we can obtain a clearer picture about labor markets in Latin America.     

Country selection of emerging equity markets: benefits from country attribute diversification

We propose a multivariate scoring model based on four classes of variables to predict future returns of 23 emerging equity markets. For the periods 1986–1995 and 1996–2003, our long–short portfolio (11 top/bottom ranked countries) posts a quarterly significant average raw return and a quarterly significant average market risk-adjusted return. The all-classes model dominates the one-class-models. Results from this strategy are robust regardless of whether we concentrate on the 6 top/bottom countries, reduce the emerging market universe to the largest countries, eliminate the most rewarding country during the period, use different scores, or account for realistic implementation costs.     

Brazil,China, Commodities,Key to Latin America's Future

Latin America's incredible resilience to the global financial crisis and ensuing downturn will be tested in 2011,according to both the World Bank and the International Monetary Fund.While GDP growth for the region is expected in the 4%to 5%range,in line with the East Asian Tigers, currency pressures and inflation,along with the possibility of a substantial slowdown in either Brazil or China,pose huge risks for the region. While Latin America's impressive 6% growth rate in 2010 outpaced that of Eastern Eu...