Foreign Ownership Restrictions and Equity Price Premiums: Some Evidence on Demand, Sentiment, and Information

UC Riverside Working Paper No. 98-02

Posted: 26 Jun 1998

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance

Y. Peter Chung

University of California at Riverside

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Date Written: January 1998

Abstract

We study the impact of barriers to international capital flows with stock price data from eleven countries whose capital markets features shares restricted to locals and otherwise identical unrestricted shares to foreigners. Large price premiums for unrestricted shares relative to otherwise identical restricted shares are typically observed. Although basic notions of international asset pricing offer straightforward explanation for the price premiums, we find little evidence that the premiums are explained by lower foreign required returns. Alternative concepts and theories centering on investor demand, sentiment, and information availability are more successful in explaining the time-series and cross-section of price premiums. More specifically, premiums for unrestricted shares are positively correlated with international mutual fund flows, matching closed-end country fund premiums, national credit ratings, and coverage of companies by global publications.

JEL Classification: F00

Suggested Citation

Bailey, Warren B. and Chung, Y. Peter and Kang, Jun-Koo, Foreign Ownership Restrictions and Equity Price Premiums: Some Evidence on Demand, Sentiment, and Information (January 1998). UC Riverside Working Paper No. 98-02. Available at SSRN: https://ssrn.com/abstract=85429

Warren B. Bailey

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance ( email )

China

Y. Peter Chung (Contact Author)

University of California at Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States
909-787-3906 (Phone)
909-787-2933 (Fax)

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

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