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.     

Dealing with financial crises in emerging markets

Financial crises in emerging markets are a reality of doing business in these countries in the early twenty‐first century. Managers can gain some perspective on this problem from experiences of firms in crises that occurred in Mexico, Thailand, and Russia during the 1990s. We show how firms have taken steps to protect themselves against financial crises and to deal with the crises once underway in these three countries. Such strategies are divided into frameworks of: short‐term, immediate responses to a crisis; intermediate steps during the period of economic downturn; and long‐term continuing responses for operating in emerging markets. © 2002 Wiley Periodicals, Inc.     

Facing Risks and Investing in Emerging Markets

The art of investing is evolving into the science of investing. As new generations of increasingly scientific investment mangers come to the task, they wi11 rely more on analysis, process and structure than on intuition, advice and whim. This does not mean heroic investment insights are a thing of the past. It means that investors will increasingly capture and apply those insights in a     

Returns on ADRs and arbitrage in emerging markets

In this paper we compare the distributions of ADR returns and the returns of the locally traded shares between Chile and Argentina. This comparison is interesting because both countries are emerging economies with a similar free market orientation and the trading hours in both countries virtually coincide with the trading hours in New York. Argentina and Chile differ, however, in two important aspects: During our sample period: (1) The Argentinean market was completely under a fixed-exchange rate system, while Chile maintained a flexible exchange rate regime; and (2) Argentina did not impose any restrictions on foreign investments, while Chile did. We find that the return distributions of the Chilean ADRs are significantly different from the distributions of the returns on the respective underlying Chilean shares. While the mean returns are the same, the return's S.D. are significantly different. In contrast, the hypothesis that the distributions of the returns on the Argentinean ADRs and the returns on their respective underlying shares are the same cannot be rejected. We then use a threshold model to estimate the transaction costs of trading the ADRs and the locally traded shares. We find that the transaction costs that must be added to the returns spread before arbitrage is possible were between 100 and 200 basis points for Chilean ADRs. It was between 66 and 165 basis points for the Argentinean ADRs. The daily return spread reversion caused by arbitrage activities was estimated to be approximately 30% for Chilean ADRs and 40% for Argentinean ADRs. Finally, we cannot reject the hypothesis that low liquidity was a major factor in the cost difference between the two countries.     

Determinants of venture capital investments in emerging markets

Jeng and Wells (2000) initialized the examination of venture capital (VC) determinants across countries. Meanwhile, we enlarge their scope using aggregated VC funding in 118 countries, 78 being considered emerging markets, using panel data from 2000 to 2013. We show that M&A activity, legal rights and investor protection, innovation, IP protection, corruption and also corporate taxes and unemployment have impact. We reveal the economic magnitude and direction of impact of the determinants to be different for the two country categories for several parameters, enhancing previous research by emphasizing that VC investment drivers can be different for developed and developing countries.     

The tail risk of emerging stock markets

We investigate tail risk in emerging stock markets at the country, regional and world levels, by comparing the investable and non-investable segments in terms of the expected shortfall of standardized returns and tail dependence on the world market. Employing the skewed Student-t GJR-GARCH model and the SJC copula, we show that most investable portfolios have lower tail risk but higher tail dependence than non-investable ones; emerging markets are likely more dependent on the world market during large joint losses than large joint gains; and tail dependence of the aggregate and investable markets on the world market varies across countries and regions.     

Individual responses to competing institutional logics in emerging markets

In this paper, we study individual responses to competing institutional market and community logics. We argue that when individuals experience strong pressures both from market and community logics in hybrid contexts, they are unlikely to choose one logic over another. Instead, they combine both logics act as hybridizers. We identified three roles of local (Kazakhstani and Turkish) managers as hybridizers: bridging between competing logics, boundary spanning and cultural buffering.     

Geographical focus in emerging markets and hedge fund performance

Emerging market hedge funds are an asset class which does not seem to outperform the market benchmarks. We hypothesize that the poor aggregate performance may be due to lack of focus of these funds. Our results suggest that a portfolio of emerging market hedge funds, which have geographical focuses, outperform their underlying stock markets. Hedge funds which focus on Eastern Europe appear to have the best outperformance. However, we also find that the performance of all emerging market hedge funds has reduced after the start of the 2008 Crisis.     

Sovereign debt and corporate borrowing costs in emerging markets

We document that the corporate sector faces higher borrowing costs when the external debt of the public sector is higher. By contrast, no significant relationship is found between domestic public debt and corporate borrowing costs. An increase in sovereign debt by one standard deviation from its sample mean is associated with 9% higher loan yield spreads. The correlation is considerably higher in countries with weak creditor rights and past sovereign default episodes. Overall, these findings suggest substantial adverse linkages between public external debt and private financing costs.     

Evaluating service quality and consumer satisfaction in emerging markets

Developing economies offer tremendous potential for future growth and organizations appreciating these consumers’ requirements stand to reap considerable returns. However, compared with more developed economies published consumer studies are few. In particular, there is a dearth of service quality research and hardly any from Africa. Furthermore, the little available research tends to apply Western methodologies, which may not be entirely appropriate. This research investigates East African consumer perceptions of retail banking using an approach that takes account of the research context. Qualitative research was undertaken to define the relevant service attributes. Performance along these was then investigated through a survey with over 2000 respondents. Principal component analysis identifies 13 core service dimensions and multinomial logistic regression reveals which are the key drivers of customer satisfaction. Comparison of the results with studies from other regions confirms that established standardized research instruments are likely to miss or under‐represent service attributes important in developing countries.     

Common risk factors in returns in Asian emerging stock markets

This paper examines the application of the Fama and French's (1993) three-factor model in three Asian emerging markets (Hong Kong, Singapore and Taiwan). The empirical evidence is consistent with the US findings that the model can explain most of the variations in average returns. However, we find that the main contributing factor is the contemporaneous market excess returns. The impact of the size effect and book-to-market (BE/ME) factor is limited and in some cases insignificant. When the three-factor model is modified by using lagged market excess returns instead in order to check for the predictability of the market factor, the explanatory power of the model drops substantially but both the risk factors for size and BE/ME are now able to contribute significantly in explaining the cross-sectional variations of stock returns. Their explanatory powers are strongest for small-size with high BE/ME portfolios. The robustness of our results is also checked for the separation of up and down markets periods and January effect.     

Intercultural competencies for emerging markets: A contextualized approach

Emerging markets are increasingly important to researchers and managers focused on helping multinational enterprises to thrive in often attractive yet unfamiliar environments. However, empirical knowledge about emerging markets is relatively under-developed when it comes to managing international talent, particularly with regard to the specific demands placed on human capital in an emerging market context. We review the existing literature about macro-level trends and micro-level characteristics of emerging markets, and we conduct cluster analyses using secondary data in order to identify the individual intercultural competencies required for managers to succeed in this environment. We propose three context-specific competencies that are especially salient in response to the complexities of emerging markets – recognizing perspectives, managing relationships, and navigating uncertainty. Finally, we discuss organizational implications and future research directions for those seeking a more nuanced view of talent management via contextualization.     

Organizational entrainment and international new ventures from emerging markets

Organizational entrainment captures the temporal fit in the activity cycles between exchange partners. We argue that organizational entrainment between international new ventures (INVs) and their most important international customers positively moderates the relationship between the degree, scope, and speed of internationalization and performance of INVs. We test our hypotheses on INVs from China, India and South Africa. The results support the contingent role of entrainment for degree and scope of internationalization but not for speed. Findings suggest that, when INVs attain temporal fit with their most important international customers, they can implement their strategic goals in international markets more effectively.     

Speculative attacks in emerging markets: The role of macroeconomic fundamentals

The recent currency crises in several emerging markets have touched off a debate about their causes. Whereas some blame fickle speculators for triggering speculative attacks virtually at random, others argue that the typical currency crisis is attributable to myopic economic policies. This paper examines common patterns of a large number of balance-of-payments crises focusing on a comprehensive sample of 26 emerging markets. Following a consistent categorising of events in the foreign exchange markets, it analyses the behaviour of a set of relatively easily accessible variables prior to speculative attacks. Applying univariate as well as multivariate statistical methods, it gives support to the view that in the past countries were not hit randomly by attacks on their currencies. The views expressed in this paper are those of the author and do not necessarily reflect those of the Deutsche Bundesbank. Earlier drafts of this paper were presented at the 73^rd Annual Conference of the Western Economic Association International, Lake Tahoe, in June 1998, at a Workshop of the Austrian National Bank, in July 1998, and at the ZEI Summer School on International Macroeconomics, Bad Honnef, in August 1998. The author would like to thank the participants of these meetings, and Michael Dueker, Jürgen von Hagen, Pu Shen, Andrew Rose and his colleagues for helpful comments and suggestions.     

Response strategies of local firms to import competition in emerging markets

Using a sample of 3808 firms from 1996 to 2007, the impact of three strategic options that can be implemented by local Asian (i.e., Indian) firms facing increased import competition in their domestic market is analyzed. On average, firms with greater investments in intangible resources and tighter product focus do better, while firms with greater international sales perform poorly compared to their peers. However, in industries characterized by high import competition, firms with international operations and product focus tend to have higher performance, while firms with intangible resources perform poorly.