Foreign Speculators and Emerging Equity Markets

864

407

Despite the dramatic reduction in explicit barriers to international investment activity over the last 60 years, the impact of financial globalization has been surprisingly limited. I argue that country attributes are still critical to financial decision-making because of "twin agency problems" that arise because rulers of sovereign states and corporate insiders pursue their own interests at the expense of outside investors. When these twin agency problems are significant, diffuse ownership is inefficient and corporate insiders must co-invest with other investors, retaining substantial equity. The resulting ownership concentration limits economic growth, financial development, and the ability of a country to take advantage of financial globalization.

Section: The Twin Agency Problems Corporate Finance and Financmentioning

confidence: 99%

The Limits of Financial Globalization

Stulz

2005

864

407

“…Other recent papers use return dispersion (RD) as follows. Bekaert and Harvey (1997, 2000) find that, for developed markets, markets with higher RD tend to have a higher volatility level. In contrast, for emerging markets, they find that markets with a lower RD tend to have a higher volatility level.…”

mentioning

confidence: 97%

Momentum and Reversals in Equity‐Index Returns During Periods of Abnormal Turnover and Return Dispersion

Connolly¹,

Stivers²

2003

119

We document new patterns in the dynamics between stock returns and trading volume. Speci¢cally, we ¢nd substantial momentum (reversals) in consecutive weekly returns when the latter week has unexpectedly high (low) turnover. This pattern is evident in equity indices, index futures, and individual stocks. Similarly, we also ¢nd that the autocorrelation in equity-index returns is increasing with the unexpected dispersion across the latter week's ¢rm-level returns. Weeks with extreme turnover and dispersion shocks (both high and low) tend to have more macroeconomic news releases. Our ¢ndings bear on understanding price formation and the economic interpretation of turnover and dispersion shocks.IN THIS PAPER, we document new patterns in the dynamics between stock returns and trading volume. Speci¢cally, we ¢nd substantial momentum in consecutive weekly stock returns when the latter week has abnormally high turnover. 1 Conversely, we ¢nd substantial reversals in consecutive weekly returns when the latter week has abnormally low turnover. By abnormal turnover, we mean the shock in the turnover time series after controlling for its autoregressive properties and for normal movements with the market return. 2 We ¢nd this return pattern in equity indices, index futures, individual stocks, and in the U.S., Japan, and U.K. stock markets.

“…Barndorff‐Nielsen and Shephard (2004) find similar results. Bekaert and Harvey (1995, 2000) provide direct evidence that market integration and financial liberalization change the correlation of emerging markets' stock returns with the global stock market index.…”

mentioning

confidence: 99%

Correlation Risk and Optimal Portfolio Choice

Buraschi

Porchia

Trojani

2010

210

We develop a new framework for multivariate intertemporal portfolio choice that allows us to derive optimal portfolio implications for economies in which the degree of correlation across industries, countries, or asset classes is stochastic. Optimal portfolios include distinct hedging components against both stochastic volatility and correlation risk. We find that the hedging demand is typically larger than in univariate models, and it includes an economically significant covariance hedging component, which tends to increase with the persistence of variance-covariance shocks, the strength of leverage effects, the dimension of the investment opportunity set, and the presence of portfolio constraints. Copyright (c) 2009 the American Finance Association.