Emerging Equity Markets: Are They for Real?
Posted: 24 Apr 1997
Date Written: Undated
Using the methodology developed by Fama (1990) and Schwert (1990), we measure the degree to which six of the largest emerging equity markets in Latin America and Asia are rational in the sense that they incorporate domestic and global shocks to future expected cash flows and time- variation in the discount rates which price these flows. The Chilean, Mexican and, to a lesser extent, Malaysian markets appear more rational than either the Korean and Taiwanese or the base case U.S. and Japanese markets. However, we argue that numerous factors make the methodology unable to rank markets by relative efficiency. We also find evidence of the influence of real global variables on the Taiwanese and Korean markets.
JEL Classification: P23, M31
Suggested Citation: Suggested Citation