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Equity portfolio investment in developing countries : a literature survey

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  • Claessens, Stijn

Abstract

The author surveys the literature on equity portfolio investment to develop a research agenda that could help developing countries interested in attracting equity portfolio flows. He finds that a broad literature exists on equity portfolio flows, but that most empirical tests have focused on industrial countries. Although some of the analytical papers may be applicable to developing countries, the author identifies areas of empirical research of specific interest to developing countries: identifying barriers that prevent a free flow of (equity portfolio) capitalbetween industrial and developing countries; quantifying the opportunity costs of these barriers in higher risk-adjusted cost of capital and lower flow of capital; analyzing the optimal amount of portfolio investment and the degree to which investors in industrial countries are currently (under-) invested in developing countries; and analyzing the efficiency of the various stock markets in developing countries, as inefficient stock markets could be a barrier to foreign flows. This research could help policymakers in developing countries make decisions about liberalizing capital accounts, reforming financial markets, and coping with the potential volatility of equity portfolio flows.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1089.

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Date of creation: 28 Feb 1993
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Handle: RePEc:wbk:wbrwps:1089

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Related research

Keywords: Economic Theory&Research; International Terrorism&Counterterrorism; Banks&Banking Reform; Financial Intermediation; Markets and Market Access;

References

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  1. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  2. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-62, April.
  3. Shumel Kandel & Robert F. Stambaugh, . "A Mean-Variance Framework for Tests for Asset Pricing Models," Rodney L. White Center for Financial Research Working Papers 25-88, Wharton School Rodney L. White Center for Financial Research.
  4. Cumby, Robert E & Glen, Jack D, 1990. " Evaluating the Performance of International Mutual Funds," Journal of Finance, American Finance Association, vol. 45(2), pages 497-521, June.
  5. Ren� M Stultz, 1984. "Pricing Capital Assets in an International Setting: An Introduction," Journal of International Business Studies, Palgrave Macmillan, vol. 15(3), pages 55-73, September.
  6. Adler, Michael & Dumas, Bernard, 1975. "Optimal International Acquisitions," Journal of Finance, American Finance Association, vol. 30(1), pages 1-19, March.
  7. Hanson, James A., 1992. "Opening the capital account : a survey of issues and results," Policy Research Working Paper Series 901, The World Bank.
  8. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  9. Alberto Giovannini & Philippe Jorion, 1988. "The Time-Variation of Risk and Return in the Foreign Exchange and Stock Markets," NBER Working Papers 2573, National Bureau of Economic Research, Inc.
  10. Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-57, March.
  11. Stulz, ReneM., 1981. "A model of international asset pricing," Journal of Financial Economics, Elsevier, vol. 9(4), pages 383-406, December.
  12. Cho, D Chinhyung & Eun, Cheol S & Senbet, Lemma W, 1986. " International Arbitrage Pricing Theory: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 41(2), pages 313-29, June.
  13. Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-88, September.
  14. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September.
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Cited by:
  1. Gooptu, Sudarshan, 1994. "Are portfolio flows to emerging markets complementary or competitive?," Policy Research Working Paper Series 1360, The World Bank.

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