Foreign Speculators and Emerging Equity Markets

57 Pages Posted: 30 Aug 2000 Last revised: 4 Apr 2008

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1997

Abstract

A number of countries have delayed the opening of their capital markets to international" investment because of reservations about the impact of foreign speculators on both expected" returns and market volatility. We propose a cross-sectional time-series model that attempts to" assess the impact of market liberalizations, in the form of the offering of depositary receipts country funds and other financial instruments, in an extranational market and market volatility in emerging equity markets. We also examine the impact of capital market" liberalizations on the correlation of emerging equity market returns and the world market return. " Our empirical approach is designed to control for other economic events which might confound" the impact of foreign speculators on local equity markets. Whatever the empirical specification the cost of capital always decreases after a capital market liberalization but the effect is" economically and statistically weak. The effects on volatility and correlation are less robust."

Suggested Citation

Bekaert, Geert and Harvey, Campbell R., Foreign Speculators and Emerging Equity Markets (December 1997). NBER Working Paper No. w6312. Available at SSRN: https://ssrn.com/abstract=226067

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

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