Market Integration and Investment Barriers in Emerging Equity Markets |
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| Authors: | Bekaert Geert |
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| Affiliation: | Geert Bekaert is with the Graduate School of Business at Stanford University. This article was commissioned by the Debt and International Division of the World Bank for its Conference on Portfolio Investment in Developing Countries, Washington, D.C., September 9–10, 1993. The author would like to thank Michael Urias for excellent research assistance and many useful comments; Stijn Claessens, Steve Grenadier, Bob Hodrick, Ingrid Werner, the discussant Cheol Eun, and three anonymous referees for suggestions and comments; Steve Gray and Rohit Kumar for their assistance with some of the computations; and Bob Korajzyek for providing part of the data. |
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| Abstract: | This article develops a return-based measure of market integrationfor nineteen emerging equity markets. It then examines the relationbetween that measure, other return characteristics, and broadlydefined investment barriers. Although the analysis is exploratory,some clear conclusions emerge. First, global factors accountfor a small fraction of the time variation in expected returnsin most markets, and global predictability has declined overtime Second, the emerging markets exhibit differing degreesof market integration with the U.S. market, and the differencesare not necessarily associated with direct barriers to investment.Third, the most important de facto barriers to global equity-marketintegration are poor credit ratings, high and variable inflation,exchange rate controls, the lack of a high-quality regulatoryand accounting framework, the lack of sufficient country fundsor cross-listed securities, and the limited size of some stockmarkets. |
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