We propose a cross-sectional time-series model to assess the impact of market lib- eralizations in emerging equity markets on the cost of capital, volatility, beta, and correlation with world market returns. Liberalizations are defined by regulatory changes, the introduction of depositary receipts and country funds, and structural breaks in equity capital flows to the emerging markets. We control for other eco- nomic events that might confound the impact of foreign speculators on local equity markets. Across a range of specifications, the cost of capital always decreases after a capital market liberalization with the effect varying between 5 and 75 basis points. THROUGHOUT HISTORY AND IN MANY MARKET ECONOMIES, the speculator has been characterized as both a villain and a savior. Indeed, the reputation of the speculator generally depends on the country where he does business. In well- functioning advanced capital markets, such as the United States, the specu- lator is viewed as an integral part of the free-market system. In developing capital markets, the speculator, and in particular the international specula- tor, is looked upon with many reservations. Recently, many so-called "emerging" markets have opened up their capital markets to foreign investors, creating an ideal laboratory for examining the impact of increased foreign portfolio investment in developing equity mar- kets. Our main focus is the impact on expected equity returns-the cost of equity capital. However, we also examine the effects of increased foreign

/pdf/foreign-speculators-and-emerging-equity-markets-ujwiufzquw.pdf

Foreign Speculators and Emerging Equity Markets

https://www.nber.org/system/files/working_papers/w8538/w8538.pdf

Why are Foreign Firms Listed in the U.S. Worth More

Non-U.S. firms cross-listing shares on U.S. exchanges as American Depositary Receipts earn cumulative abnormal returns of 19 percent during the year before listing, and an additional 1.20 percent during the listing week, but incur a loss of 14 percent during the year following listing. We show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing. Our tests provide support for the market segmentation hypothesis and Merton's (1987) investor recognition hypothesis. THE GLOBALIZATION OF U.S. CAPITAL MARKETS has accelerated dramatically in the past decade. Increasing numbers of companies from overseas have chosen to either raise capital through global equity issues or prepare for future capital raising by way of cross-listings on U.S. exchanges. As of 1997, about 1,300 non-U.S. companies have listed their shares for trading on the New York Stock Exchange (NYSE), the American Exchange (AMEX), the National Association of Securities Dealers' Automation Quotation (Nasdaq) system, or

https://www.jstor.org/stable/pdfplus/222432.pdf

The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States

https://www.federalreserve.gov/pubs/ifdp/2006/871/ifdp871.pdf

Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets

Transactions prices of S&P 500 futures options over 1985-1987 are examined for evidence of expectations prior to October 1987 of an impending stock market crash. First, it is shown that out-of-the-money puts became unusually expensive during the year preceding the crash. Second, a model is derived for pricing American options on jump-diffusion processes with systematic jump risk. The jump-diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during October 1986 to August 1987. Both approaches indicate no strong crash fears during the 2 months immediately preceding the crash. ATTEMPTS TO EXPLAIN WHAT caused the stock market crashes around the world in October 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes. Shifting expectations regarding monetary policy, foreign investors' fears of a dollar decline, increasing riskiness of assets-none of these appeared major enough, if present at all, to explain the magnitude of the crashes. And although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals, the initiating jump in fundamentals appears to be lacking.

The Crash of ʼ87: Was It Expected? The Evidence from Options Markets

Anomalies or illusions? Evidence from stock markets in eighteen countries

This paper examines the impact of the listing of American Depository Receipts (ADRs) on the risk and return of the underlying stocks. We find that the listing of ADRs is associated with positive abnormal returns to the underlying stock on the listing day. In addition, our results suggest that the listing of ADRs are associated with permanent increases in the return volatilities of the underlying stocks. We interpret this evidence as consistent with the existence of informed traders in the markets in which the ADRs and the underlying stocks trade.

The impact of international cross listings on risk and return

We analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better-developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investor positively affects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex-ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs’ liability of foreignness, albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1431265_code447207.pdf?abstractid=1431265&mirid=1

Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?

This paper examines shareholder wealth gains for 195 foreign firms that acquired U.S. target firms during 1983–1992. We find that foreign acquirers experience positive and significant abnormal returns of nearly two percent over days (−10, +10) when they acquire targets in the United States; however, U.S. acquiring firms do not gain at all from their purchases of foreign firms over the same period. Analysis of abnormal returns reveals that Japanese, British, Australian and Dutch acquirers gain significantly from purchases of U.S. firms. Bidder abnormal returns are not related to relative size of target to bidder, or to the extent of their overseas exposure, or to the target's RD they do not exhibit an industry factor nor are they affected by the value of foreign currency. There is support for the hypothesis that competition among bidding firms for the same target decreases the returns to the acquirers; we find that the 1986 Tax Act has led to no gains to foreign buyers of U.S. firms.

Foreign acquisitions in the United States: Effect on shareholder wealth of foreign acquiring firms

We analyze the impact of institutional and cultural differences on success in global venture capital (VC) investing. In both developed and emerging economies, superior legal rights (and enforcement) and better developed stock markets significantly enhance VC performance. Remarkably, cultural distance between countries of the portfolio company and its lead investor positively affects VC success. Further analysis reveals that cultural differences create incentives for rigorous ex ante screening, improving VC performance. Finally, local VC participation enhances success and mitigates foreign VCs’ “liability of foreignness,” albeit only in developed economies. Our findings follow from analyzing VC investments in nearly 10,000 companies across 30 countries.

/pdf/success-in-global-venture-capital-investing-do-institutional-1b7pf7owor.pdf

Kishore Tandon

Papers

Anomalies or illusions? Evidence from stock markets in eighteen countries

The impact of international cross listings on risk and return

Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?

Foreign acquisitions in the United States: Effect on shareholder wealth of foreign acquiring firms

Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?