Global Growth Opportunities and Market Integration
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Christian T. Lundblad
University of North Carolina Kenan-Flagler Business School
University of Washington - Michael G. Foster School of Business
EFA 2004 Maastricht Meetings Paper No. 1697
We propose an exogenous measure of a country's growth opportunities by interacting the country's local industry mix with global price to earnings (PE) ratios. We find that these exogenous growth opportunities predict future changes in real GDP and investment in a large panel of countries. This relation is strongest in countries that have liberalized their capital accounts, equity markets, and banking systems. We also find that financial development, external finance dependence, and investor protection measures are much less important in aligning growth opportunities with growth than is capital market openness. Finally, we formulate new tests of market integration and segmentation by linking local and global PE ratios to relative economic growth.
Number of Pages in PDF File: 56
Keywords: Growth Opportunities, Market Integration, Finance and Growth, Capital Allocation, Capital Account Openness, Financial Liberalization
JEL Classification: F30, F36, G15, O11, O57working papers series
Date posted: July 1, 2004
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