In the month that the capital account is liberalized, all publicly traded firms experience a 7 percent stock price revaluation. Firms whose shares become eligible for purchase by foreigners experience and additional revaluation that is directly proportional to their firm specific reduction in aggregate risk -- the covariance of the typical firm's stock return with the local market is on average 30 times larger than its covariance with the world market. The statistical significance of this proportionality persists after controlling for the firm-specific effects of liberalization on expected future profits in this sample of of 411 firms from 11 countries. These findings suggest that capital account liberalization facilitates risk sharing.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.