Do Foreign Investors Insulate Firms from Local Shocks? Evidence from the Response of Investable Firms to Monetary Policy

52 Pages Posted: 20 Mar 2010 Last revised: 22 Dec 2017

See all articles by Bill B. Francis

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Delroy M. Hunter

University of South Florida

Patrick J. Kelly

University of Melbourne - Department of Finance

Date Written: December 21, 2017

Abstract

Extant theory suggests that foreign ownership of shares of emerging-market (investable) firms may insulate them from local shocks. Examining 24 emerging markets, we find that the returns of both investable and non-investable firms are sensitive to local monetary policy shocks. Surprisingly, in 46% of our country-sample, investable stock returns are more sensitive to local shocks than non-investable stock returns. Differences in leverage, stock liquidity, exposure to domestic product markets, or industry cyclicality do not drive these findings. These findings reinforce a positive association between investability and price efficiency found by prior research and have implications for the decision to further open frontier and emerging markets and the conduct of emerging-market monetary policy.

Keywords: investable stocks, non-investable stocks, local shocks, monetary policy, structural VAR, price efficiency, financial liberalization

JEL Classification: E52, F36, G15

Suggested Citation

Francis, Bill B. and Hunter, Delroy M. and Kelly, Patrick J., Do Foreign Investors Insulate Firms from Local Shocks? Evidence from the Response of Investable Firms to Monetary Policy (December 21, 2017). Available at SSRN: https://ssrn.com/abstract=1573334 or http://dx.doi.org/10.2139/ssrn.1573334

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Delroy M. Hunter

University of South Florida ( email )

Dept of Finance, Muma College of Business
4202 E. Fowler Ave, BSN3403
Tampa, FL 33620
United States
(813) 843-2085 (Phone)
(813) 974-3084 (Fax)

HOME PAGE: http://www.usf.edu/business/contacts/hunter-delroy.aspx

Patrick J. Kelly (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

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