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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.

Suggested Citation

  • Claessens, Stijn, 1993. "Equity portfolio investment in developing countries : a literature survey," Policy Research Working Paper Series 1089, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1089
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    References listed on IDEAS

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    1. Kandel, Shmuel & Stambaugh, Robert F, 1989. "A Mean-Variance Framework for Tests of Asset Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 2(2), pages 125-156.
    2. Hanson, James A., 1992. "Opening the capital account : a survey of issues and results," Policy Research Working Paper Series 901, The World Bank.
    3. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    4. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    5. 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 313-329, June.
    6. Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-888, September.
    7. 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 225-262, April.
    8. René M Stultz, 1984. "Pricing Capital Assets in an International Setting: An Introduction," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 15(3), pages 55-73, September.
    9. Giovannini, Alberto & Jorion, Philippe, 1989. " The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets," Journal of Finance, American Finance Association, vol. 44(2), pages 307-325, June.
    10. Adler, Michael & Dumas, Bernard, 1975. "Optimal International Acquisitions," Journal of Finance, American Finance Association, vol. 30(1), pages 1-19, March.
    11. 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 1121-1152, September.
    12. Harvey, Campbell R, 1991. " The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-157, March.
    13. Stulz, ReneM., 1981. "A model of international asset pricing," Journal of Financial Economics, Elsevier, vol. 9(4), pages 383-406, December.
    14. 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.
    15. Diwan, Ishac & Errunza, Vihang & Senbet, Lemma W., 1992. "The pricing of country funds and their role in capital mobilization for emerging economies," Policy Research Working Paper Series 1058, The World Bank.
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    Citations

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    Cited by:

    1. Geert Bekaert & Campbell R. Harvey, 2000. "Capital Flows and the Behavior of Emerging Market Equity Returns," NBER Chapters,in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 159-194 National Bureau of Economic Research, Inc.
    2. Gooptu, Sudarshan, 1994. "Are portfolio flows to emerging markets complementary or competitive?," Policy Research Working Paper Series 1360, The World Bank.
    3. Afees A. Salisu & Kazeem Isah, 2017. "A Capital Flight-Growth Nexus in Sub-Saharan Africa: The Role of Macroeconomic Uncertainty," Working Papers 034, Centre for Econometric and Allied Research, University of Ibadan.

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