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Stock Market Liberalizations and the Repricing of Systematic Risk

  • Anusha Chari
  • Peter Blair Henry

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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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
Note: AP IFM
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