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Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices

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  • Peter Blair Henry

    (Graduate School of Business, Stanford University, Stanford, CA 94305-5015)

Abstract

A stock market liberalization is a decision by a country's government to allow foreigners to purchase shares in that country's stock market. On average, a country's aggregate equity price index experiences abnormal returns of 3.3 percent per month in real dollar terms during an eight-month window leading up to the implementation of its initial stock market liberalization. This result is consistent with the prediction of standard international asset pricing models that stock market liberalization may reduce the liberalizing country's cost of equity capital by allowing for risk sharing between domestic and foreign agents. Copyright The American Finance Association 2000.

Suggested Citation

  • Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, April.
  • Handle: RePEc:bla:jfinan:v:55:y:2000:i:2:p:529-564
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