Do Implicit Barriers Matter for Globalization?
64 Pages Posted: 23 Dec 2010 Last revised: 14 Jun 2013
Date Written: August 2011
Market liberalization may not result in global pricing or full market integration if implicit barriers
are important. We test this proposition for 22 emerging markets using the conditional version of
Errunza and Losq (1985) model. We estimate and compare the degree of integration for stocks
that are eligible for purchase by foreigners (investible) and those that are not (non-investible).
Our results show that local factors are priced for both segments 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 15-20 percent.
Keywords: International Asset Pricing, Emerging Markets, Market Integration, Liberalization, Globalization
JEL Classification: G15, F30, G30
Suggested Citation: Suggested Citation