On the Pricing of Investable Securities and the Role of Implicit Barriers

51 Pages Posted: 5 Mar 2007 Last revised: 30 Jun 2008

See all articles by Francesca Carrieri

Francesca Carrieri

McGill University - Desautels Faculty of Management

Ines Chaieb

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Date Written: June 2008

Abstract

Academics and practitioners implicitly assume that investable emerging market securities are priced in the global context. However the removal of explicit barriers may not necessarily result in increased market integration if implicit barriers are also important. To test this proposition, we use the conditional version of the Chaieb and Errunza (2007) model that allows for segmentation and purchasing power parity deviations, to estimate the pricing of IFC investable indices from eight emerging markets. Our results suggests that reduction in explicit barriers in conjunction with market liberalization does not lead to global pricing of investable indices. Local risk factors are important, an indication that these securities are still a separate asset class in global portfolios. Initial evidence suggests that the hindrance to financial globalization is related to corporate governance characteristics of the country.

Keywords: International asset pricing, segmentation, currency risk, emerging markets

JEL Classification: G12, G15, F30, F31, G30

Suggested Citation

Carrieri, Francesca and Chaieb, Ines and Errunza, Vihang R., On the Pricing of Investable Securities and the Role of Implicit Barriers (June 2008). EFA 2008 Athens Meetings Paper, Available at SSRN: https://ssrn.com/abstract=968256 or http://dx.doi.org/10.2139/ssrn.968256

Francesca Carrieri

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-1582 (Phone)
514-398-3876 (Fax)

Ines Chaieb (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland
+41223798568 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-4056 (Phone)
514-398-3876 (Fax)

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