We attempt to answer the following key questions: What are the revaluation effects and the impacts on the cost of capital, volatility, and correlation with world market returns from stock market liberalization in emerging market countries? These questions have been studied extensively at the market-level, i.e. using country indices, but not at the firm level. In the market-level analysis, there is increasing concern whether the country indices are proper means to answer those questions, for example they may not represent the real holdings of foreign portfolio investors after liberalization. Indeed, foreign portfolio investors are known to prefer investment in large and well-known firms. Hence, the opening of capital markets should have a differential impact across securities depending on foreign investors' demand. In order to take into account the potentially different impacts caused by foreign investors' demand, we use individual firm data as well as market-level indices. Our analysis is based on the cross-sectional and time-series panel regression method. / Our test results using country indices show statistically and economically significant revaluation effects, and increases in the cost of capital. While the stock market volatility increases, its correlation with world market return does not change after stock market liberalization. More important than these market-level findings, we report significantly different impacts of stock market liberalization, based on firm size, which is used as a proxy for foreign investors' demand. Large firms tend to exhibit large revaluation effects, insignificant change in the cost of capital, small increases in volatility, and increases in correlation with the world market from liberalization. Small firms show small revaluation effects, increases in the cost of capital, large increases in volatility and decreases in correlation with world market returns after liberalization. Our results have important implications for international investors seeking to manage their global exposure as well as for policy makers considering capital market liberalization.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:QMM.37879 |
| Date | January 2001 |
| Creators | Chung, Hyunchul, 1965- |
| Contributors | Errunza, Vihang (advisor), Christoffersen, Peter (advisor) |
| Publisher | McGill University |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Format | application/pdf |
| Coverage | Doctor of Philosophy (Faculty of Management.) |
| Rights | All items in eScholarship@McGill are protected by copyright with all rights reserved unless otherwise indicated. |
| Relation | alephsysno: 001846414, proquestno: NQ75618, Theses scanned by UMI/ProQuest. |
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