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Stock Market Liberalizations and the Repricing of Systematic Risk

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  • Anusha Chari
  • Peter Blair Henry

Abstract

When countries open their stock markets to foreign investors, firms that become eligible for purchase by foreigners (investible) are repriced according to the difference in the covariance of their returns with the local and world market. An investible firm whose return covariance with the local market exceeds that with the world market by 0.01 will experience a firm-specific revaluation of 3.4 percent. In contrast, the repricing of firms that remain off limits to foreign investors (non-investible) bears no significant relationship to differences in local and world covariances. These findings suggest that the CAPM has predictive power for the cross-sectional repricing of systematic risk when barriers to capital movements are removed.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8265.

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Date of creation: May 2001
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Publication status: published as Chari, Anusha and Peter Blair Henry. "Risk Sharing and Asset Prices: Evidence from a Natural Experiment." The Journal of Finance 59, 3 (June 2004): 1295-1324.
Handle: RePEc:nbr:nberwo:8265

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Citations

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Cited by:
  1. Eva de Francisco, 2005. "Limited Participation, Income Distribution and Capital Account Liberalization," Computing in Economics and Finance 2005, Society for Computational Economics 454, Society for Computational Economics.
  2. Hali J. Edison & Francis E. Warnock, 2001. "A simple measure of the intensity of capital controls," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 708, Board of Governors of the Federal Reserve System (U.S.).
  3. Bekaert, Geert & Harvey, Campbell R., 2002. "Research in emerging markets finance: looking to the future," Emerging Markets Review, Elsevier, Elsevier, vol. 3(4), pages 429-448, December.
  4. Sara B. Holland & Francis E. Warnock, 2003. "Firm-level access to international capital markets: evidence from Chilean equities," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 753, Board of Governors of the Federal Reserve System (U.S.).
  5. Frenkel, Michael & Menkhoff, Lukas, 2003. "Are Foreign Institutional Investors Good for Emerging Markets?," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-283, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  6. Bae, Kee-Hong & Chan, Kalok & Ng, Angela, 2004. "Investibility and return volatility," Journal of Financial Economics, Elsevier, Elsevier, vol. 71(2), pages 239-263, February.
  7. van der Hart, Jaap & Slagter, Erica & van Dijk, Dick, 2003. "Stock selection strategies in emerging markets," Journal of Empirical Finance, Elsevier, Elsevier, vol. 10(1-2), pages 105-132, February.
  8. Nandini Gupta & Kathy Yuan, 2003. "Financial Dependence, Stock Market Liberalizations, and Growth," William Davidson Institute Working Papers Series 2003-562, William Davidson Institute at the University of Michigan.
  9. Eva de Francisco, 2005. "Limited Participation, Income Distribution and Capital-Account Liberalization: Working Paper 2005-02," Working Papers, Congressional Budget Office 16302, Congressional Budget Office.
  10. Dahlquist, Magnus & Robertsson, Goran, 2004. "A note on foreigners' trading and price effects across firms," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(3), pages 615-632, March.
  11. Mariassunta Giannetti & Luigi Guiso & Tullio Jappelli & Mario Padula & Marco Pagano, 2002. "Financial Market Integration, Corporate Financing and Economic Growth," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 179, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  12. Dahlquist, Magnus & Robertsson, Göran, 2001. "Foreigners Trading and Price Effects Across Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3033, C.E.P.R. Discussion Papers.
  13. Himmelberg, Charles P. & Hubbard, R. Glenn & Love, Inessa, 2002. "Investor protection, ownership, and the cost of capital," Policy Research Working Paper Series 2834, The World Bank.
  14. Francis, Bill B. & Hasan, Iftekhar & Hunter, Delroy M., 2002. "Emerging market liberalization and the impact on uncovered interest rate parity," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(6), pages 931-956, November.
  15. Dahlquist, Magnus & Robertsson, Göran, 2001. "Foreigners´ Trading and Price Effects Across Firms," SIFR Research Report Series, Institute for Financial Research 1, Institute for Financial Research.
  16. G. Andrew Karolyi & Rene M. Stulz, 2002. "Are Financial Assets Priced Locally or Globally?," NBER Working Papers 8994, National Bureau of Economic Research, Inc.
  17. Kim, In Joon & Eppler-Kim, Jiyeon & Kim, Wi Saeng & Byun, Suk Joon, 2010. "Foreign investors and corporate governance in Korea," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 18(4), pages 390-402, September.
  18. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, Elsevier, vol. 10(1-2), pages 3-56, February.
  19. Sara Urionabarrenetxea & Arturo Rodríguez Castellanos, 2010. "Decisive factors in company financial internationalization: an empirical study," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 36(1), pages 22-43, January.

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