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Barriers to Portfolio Flows, Short Sales Constraints and International Asset Pricing: Theory and EvidenceHai T. TaMcGill University Vihang R. ErrunzaMcGill University - Desautels Faculty of Management October 30, 2010 Abstract: We propose an international asset pricing model in a two-country framework where trading in the foreign market encounters barriers to portfolio flows and short-sale constraints. Under ownership restrictions, free assets are priced with a global risk premium whereas the restricted assets command a global risk premium, a conditional risk premium and a conditional discount. With binding ownership and short-sale constraints, some foreign assets become non-tradable, however, pricing rules are not altered. We estimate our model using maximum likelihood approach for 18 major emerging markets over the period 1989-2007 and find strong support for our model.
Number of Pages in PDF File: 48 Keywords: International Asset Pricing, Emerging Markets, Barriers to Investment, Foreign Ownership Restrictions, Short Sales Constraints JEL Classification: F39, G12, G15 working papers seriesDate posted: January 20, 2011 ; Last revised: March 7, 2011Suggested CitationContact Information
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