Asian equity markets: growth,opportunities, and challenges

Asian equity markets have grown significantly in size since the early 1990s, driven by strong international investor inflows, growing regional financial integration, capital account liberalization, and structural improvements to markets. The development of equity markets provides a more diversified set of channels for financial intermediation to support growth, thus bolstering medium-term financial stability. At the same time, as highlighted by the May–June 2006 market corrections, the increasing role of stock markets potentially changes the nature of macroeconomic and financial stability risks, as well as the policy requirements for dealing with these risks.     

The interrelatedness of global equity markets, money markets, and foreign exchange markets

This article investigates different aspects of global financial markets, specifically relationships among equity markets, money markets, and foreign exchange markets across countries. To represent the three major financial markets of the world, Japan is the proxy for Asia, Germany is the proxy for Europe, and the United States is the proxy for North America. Strong evidence exists that international money markets and international equity markets are becoming increasingly integrated over time. This article incorporates foreign exchange values as partial determinants of equity returns and money market returns and investigates the interactions among these three asset markets from a global perspective.     

Correlation dynamics in European equity markets

We examine correlation dynamics using daily data from 1993 to 2002 on the five largest Euro-zone stock market indices. We also study, for comparison, the correlations of a sample of individual stocks. We employ both unconditional and conditional estimation methodologies, including estimation of the conditional correlations using the symmetric and asymmetric DCC-MVGARCH model, extended with the inclusion of a deterministic time trend. We confirm the presence of a structural break in market index correlations reported by previous researchers and, using an innovative likelihood-based search, we find that the it occurred at the beginning the process of monetary integration in the Euro-zone. We find mixed evidence of asymmetric correlation reactions to news of the type modelled by conventional asymmetric DCC-MVGARCH specifications.     

The transmission of emerging market shocks to global equity markets

The paper analyzes whether, and to what extent, emerging market economies (EMEs) have systemic importance for global financial markets, above and beyond their influence during crises episodes. Using a novel database of exogenous economic and political shocks for 14 systematically relevant EMEs, we find that EME shocks not only have a statistically but also economically significant impact on global equity markets. The economic significance of EME shocks is in particular underlined by their remarkably persistent effects over time. Importantly, EMEs are found to influence global equity markets about just as much in “good” times as in “bad” times, though they tend to be stronger during crises or periods of financial turbulence. Finally, we detect a large degree of heterogeneity in the transmission of EME shocks to individual countries' equity markets, stressing the different degrees of financial exposure, which is relatively higher for European equity markets.     

The monetary origins of asymmetric information in international equity markets

Existing studies using low-frequency data have found that macroeconomic shocks contribute little to international stock market covariation. However, these papers have not accounted for the presence of asymmetric information where sophisticated investors generate private information about the fundamentals that drive returns in many countries. In this paper, we use a new microstructure data set to better identify the effects of private and public information shocks about U.S. interest rates and equity returns. High-frequency private and public information shocks help forecast domestic money and equity returns over daily and weekly intervals. In addition, these shocks are components of factors that are priced in a model of the cross-section of international returns. Linking private information to U.S. macroeconomic factors is useful for many domestic and international asset-pricing tests.     

The going public decision and the structure of equity markets

The industries in which listed firms are concentrated in less developed equity markets are not random, nor entirely explained by the underlying composition of production. Listed firms and market capitalization are disproportionately concentrated in industries with low beta (measured with their beta with the market portfolio in the U.S.). We document a strong positive relationship between the industry-weighted country beta and the degree of market development across countries. Recent IPO activity confirms the result since new listings have higher betas than the average firm already in the market.     

Volatility clustering,leverage effects,and jump dynamics in the US and emerging Asian equity markets

This paper proposes asymmetric GARCH-Jump models that synthesize autoregressive jump intensities and volatility feedback in the jump component. Our results indicate that these models provide a better fit for the dynamics of the equity returns in the US and emerging Asian markets, irrespective whether the volatility feedback is generated through a common GARCH multiplier or a separate measure of volatility in the jump intensity function. We also find that they can capture several distinguishing features of the return dynamics in emerging markets, such as, more volatility persistence, less leverage effects, fatter tails, and greater contribution and variability of the jump component.     

Risk premia in international equity markets revisited

Recent evidence suggests that global equity markets are becoming more risky. We develop a model to explain risk premia in international equity markets. The model is then used to investigate the changing nature of conditional risk premia and their effect on unconditional global risk. Using this model we find that the increase in international variance and covariance of realized excess returns can be attributed to systematic variations in global risk premia correlated across markets as well. Understanding this additional source of increased global correlation is important. These results have interest both for practitioners and for those interested in modeling global asset prices.     

Volume and skewness in international equity markets

We examine the relation between trading volume and skewness in 11 international stock markets using daily and monthly data from January 1980 to August 2004. We construct single equation and VAR models of the relation between the first three moments of market returns and trading volumes. Our results show hitherto unrecognised channels of influence, and support the investor heterogeneity approach to explaining return asymmetries.     

The asset growth effect: Insights from international equity markets

Firms with higher asset growth rates subsequently experience lower stock returns in international equity markets, consistent with the U.S. evidence. This negative effect of asset growth on returns is stronger in more developed capital markets and markets where stocks are more efficiently priced, but is unrelated to country characteristics representing limits to arbitrage, investor protection, and accounting quality. The evidence suggests that the cross-sectional relation between asset growth and stock return is more likely due to an optimal investment effect than due to overinvestment, market timing, or other forms of mispricing.     

Limited arbitrage between equity and credit markets

We document that short-horizon pricing discrepancies across firms' equity and credit markets are common and that an economically significant proportion of these are anomalous, indicating a lack of integration between the two markets. Proposing a statistical measure of market integration, we investigate whether equity–credit market integration is related to impediments to arbitrage. We find that time variation in integration across a firm's equity and credit markets is related to firm-specific impediments to arbitrage such as liquidity in equity and credit markets and idiosyncratic risk. Our evidence provides a potential resolution to the puzzle of why Merton model hedge ratios match empirically observed stock-bond elasticities (Schaefer and Strebulaev, 2008) and yet the model is limited in its ability to explain the integration between equity and credit markets (Collin-Dufresne, Goldstein, and Martin, 2001).     

Asymmetric volatility and risk in equity markets

It appears that volatility in equity markets is asymmetric:returns and conditional volatility are negatively correlated.We provide a unified framework to simultaneously investigateasymmetric volatility at the firm and the market level and toexamine two potential explanations of the asymmetry: leverageeffects and volatility feedback. Our empirical application usesthe market portfolio and portfolios with different leverageconstructed from Nikkei 225 stocks. We reject the pure leveragemodel of Christie (1982) and find support for a volatility feedbackstory. Volatility feedback at the firm level is enhanced bystrong asymmetries in conditional covariances. Conditional betasdo not show significant asymmetries. We document the risk premiumimplications of these findings.     

Diversity and relative arbitrage in equity markets

An equity market is called diverse if no single stock is ever allowed to dominate the entire market in terms of relative capitalization. In the context of the standard Itô-process model initiated by Samuelson (1965) we formulate this property (and the allied, successively weaker notions of weak diversity and asymptotic weak diversity) in precise terms. We show that diversity is possible to achieve, but delicate. Several examples are provided which illustrate these notions and show that weakly-diverse markets contain relative arbitrage opportunities: it is possible to outperform or underperform such markets over any given time-horizon. The existence of this type of relative arbitrage does not interfere with the development of contingent claim valuation, and has consequences for the pricing of long-term warrants and for put-call parity. Several open questions are suggested for further study.Received: January 2004, Mathematics Subject Classification (2000): 60H10, 91B28; 60J55JEL Classification: G10We are grateful for the helpful remarks offered by seminar audiences at Columbia, Yale, Princeton, the Sloan School of MIT, Boston University, the Mathematical Institute in Oberwolfach, and the Universities of Athens, Connecticut/Storrs and Texas/Austin. Special thanks go to Professors Jérôme Detemple, Julien Hugonnier, Ralf Korn, Andrew Lo, Mark Lowenstein and Steven Shreve. We are also indebted to Dr. Adrian Banner for a number of discussions that helped sharpen our thinking about these problems, and to the referees and editors for suggestions that improved the exposition. A significant part of this work was completed in the spring semester of 2002, while the second author was on sabbatical leave at the Cowles Foundation for Research in Economics, Yale University. He is grateful to the Foundation for its hospitality.     

Global private information in international equity markets

This paper studies international equity markets when some investors have private information that is valuable for trading in many countries simultaneously. We use a dynamic model of equity trading to show that global private information helps explain US investors’ trading behavior and performance. In particular, the model predicts global return chasing (positive co-movement of US investors’ net purchases with returns in many countries) which we show to be present in the data. Return chasing in our model can be due to superior performance of US investors, not inferior knowledge or naive trend-following. We also show that trades due to private information are strongly correlated across countries. A common (global) factor accounts for about half their variation.     

The trading behavior of institutions and individuals in Chinese equity markets

This paper employs a unique data set to analyze the trading behavior of 4.74 million individual and institutional investors across Mainland China. Results show that groups of individual investors with varying trade values (as proxies for wealth levels) engage in different trading strategies. Chinese institutions are momentum investors, while less wealthy Chinese individual investors at large are contrarian investors. The results also indicate that a small group of wealthiest Chinese individuals tend to behave like institutions when they buy stocks, and behave like less wealthy individuals when they sell. Furthermore, only the trading activities of institutions and of wealthiest individuals can affect future stock volatility, but those of Chinese individual investors at large have no predictive power for future stock returns.     

新兴市场私募投资发展趋势

我们是专注于新兴市场私募投资的全球行业协会,是独立的非盈利性组织,在全球的会员超过了300家,包括基金经理、行业顾问及机构投资者,这些会员在全球100多个国家都有业务,管理资产超过了一万亿美元,这是非常令人震惊的数字,我们为所有会员提供数据等方面服务,通过向会员提供这些服务,帮助他们获得更好的信息,并且提供相经验分享和法律指引.这是我们的核心业务.那么,新兴市场私募投资的趋势如何?中国的市场趋势又如何?我想从国际投资人的角度来做一些解读.     

Disclosure and cost of equity capital in emerging markets: The Brazilian case

In this paper, we conjecture that the weak association between disclosure and cost of equity capital found in the literature (Botosan, 1997) can be caused by the high-level corporate disclosure environment found in the United States. We hypothesize that in low-level corporate disclosure environments the variability in disclosure practices across firms will be larger than in the United States, and, consequently, the marginal effect of voluntary disclosure policies will be higher. Using a newly developed Brazilian Corporate Disclosure Index (BCDI), our results confirm this hypothesis. Disclosure is strongly associated with ex ante cost of equity capital for Brazilian firms. The results are more pronounced for firms with less analyst coverage and low ownership concentration, as expected.     

Financial reforms and time-varying microstructures in emerging equity markets

This paper seeks to investigate the impact of financial reforms on time-varying microstructures in emerging equity markets. We develop annual indicators of informational efficiency, market volatility and transaction costs, using daily data for a panel of 28 emerging markets over the 1996–2007 period. We then analyze the impact of insider trading regulations, trading system automation and accounting standardization on microstructures through a set of panel regressions controlling for financial development and simultaneous reforms. Our results suggest that emerging market microstructures are affected by economic and political context, are strongly related to one another and depend on specific institutional reforms.