Do Implicit Barriers Matter for Globalization?
60 Pages Posted: 2 Mar 2010 Last revised: 1 Oct 2010
Date Written: September 29, 2010
Market liberalization may not result in global pricing or full market integration if implicit barriers are important. We use the conditional version of the Errunza and Losq (1985) model to estimate pricing of investable indices for 22 emerging markets and test this proposition. Our results show that local factors are priced and the implicit barriers are significantly associated with the integration measure. Specifically, better institutions, stronger corporate governance and more transparent markets would jointly contribute to a higher degree of integration by about 30 percent.
Keywords: International Asset Pricing, Emerging Markets, Market Integration, Liberalization, Globalization
JEL Classification: G15, F30, G30
Suggested Citation: Suggested Citation