Global Growth Opportunities and Market Integration

47 Pages Posted: 18 Jan 2005 Last revised: 19 Sep 2012

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); Duke Innovation & Entrepreneurship Initiative

Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School

Stephan Siegel

University of Washington - Michael G. Foster School of Business; CESifo

Multiple version iconThere are 2 versions of this paper

Date Written: December 2004

Abstract

We measure a country's growth opportunities by investigating how its industry mix is priced in global capital markets, using price earnings ratios of global industry portfolios. We derive three sets of empirical results. First, these exogenous growth opportunities strongly 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. Second, we re-examine the link between financial development, investor protection, capital allocation, and growth. We find that financial development and investor protection measures are much less important in aligning growth opportunities with growth than is capital market openness. Third, we formulate new tests of market integration and segmentation. Under integration, the difference between a country's local PE ratio and its global counterpart should not predict relative growth, but the difference between its "exogenous" global PE ratio and the world market PE ratio should predict relative growth.

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lundblad, Christian T. and Siegel, Stephan, Global Growth Opportunities and Market Integration (December 2004). NBER Working Paper No. w10990. Available at SSRN: https://ssrn.com/abstract=637487

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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Christian T. Lundblad

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
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United States
919-962-8441 (Phone)

Stephan Siegel

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

HOME PAGE: http://faculty.washington.edu/ss1110/

CESifo ( email )

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Germany

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