University. We are especially grateful for suggestions from Geert Bekaert, Bob Hodrick, and Ken Singleton. We also thank an anonymous referee whose comments and suggestions greatly improved the paper.

We show that equity market liberalizations, on average, lead to a one percent increase in annual real economic growth over a five-year period. The effect is robust to alternative definitions of liberalization and does not reflect a business cycle effect. The channel of growth is both increased investment post liberalization which partially reflects a decreased cost of capital and increased factor productivity. The additional investment is largely financed by foreign capital leading to deteriorating trade balances. Some of the liberalization effect can be accounted for by coincidental macroeconomic reforms as well as financial development. However, our analysis shows that even after controlling for a broad range of variables, a statistically significant and economically important role is played by equity market liberalization. We appreciate the helpful comments of Wayne Ferson, Peter Henry, Ross Levine, Graciela Kaminsky,

This paper provides an analysis of the impact of international portfolio flows on security returns. It concludes that opening a country to portfolio flows decreases its cost of capital without adverse effects on its securities markets. There is no convincing evidence that portfolio flows increase the volatility of equity returns or lead to excessive comovement of a country's equity returns with world equity returns. Though there has been much concern that portfolio flows create contagion effects, existing empirical evidence does not provide conclusive evidence that contagion due to uninformed investors is economically important. See Feldstein and Horioka (1980). 1 The 1996 numbers are obtained from World Bank (1997). 2 1 For most of the period following World War II, the economic significance of net capital flows wa s small. Further, net portfolio flows were even l ess important. Over recent years, net capital flows have become 1 much larger, especially towards developing econom...

The purpose of this monograph is to survey the academic literature on the economic implications of the corporate decision to list shares on an overseas stock exchange. My focus is on the valuation and liquidity effects of the listing decision, and the impact of listing on the company’s global risk exposure and its cost of equity capital. The evidence shows: (1) share prices reacts favorably to cross-border listings in the first month after listing; (2) post-listing price performance up to one year is highly variable across companies depending on the home and listing market, its capitalization, capital-raising needs and other company-specific factors; (3) post-listing trading volume increases on average, and, for many issues, home-market trading volume increases also; (4) liquidity of trading in shares improves overall, but depends on the increase in total trading volume, the listing location and the scope of foreign ownership restrictions in the home market; (5) domestic market risk is significantly reduced and is associated with only a small increase in global market risk and foreign exchange risk, which can result in a net reduction in the cost of equity capital of about 126 basis points; (6) American Depositary Receipts represent an effective vehicle to diversify U.S.-based investment programs globally; (7) stringent disclosure requirements are the most important impediment to cross-border listings. I.

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this paper can be found at http://www.duke.edu/charvey/Research/indexr.htm 1.

We provide an analysis of real economic growth prospects in emerging markets after nancial liberalizations. In contrast with previous research, we identify the nancial liberalization dates and examine the inuence of liberalizations while controlling for a number of other macroeconomic and nancial variables. Our work also introduces an econometric methodology that allows us to use extensive time-series as well as crosssectional information for our tests. We nd across a number of di#erent specications that nancial liberalizations are associated with signicant increases in real economic growth. JEL Classication: F3, G0, O1 # We appreciate the comments of Rodolfo Apreda, Sebastian Edwards and participants at the NBER Inter-American Seminar on Economics, December 2-4, 1999 in Buenos Aires. Send correspondence to: Campbell R. Harvey, Fuqua School of Business, Duke University, Durham, NC 27708. Phone: (919)-660-7768, E-mail: cam.harvey@duke.edu . An electronic version of the paper is...

: We aim to provide insight into the observed equity home bias phenomenon by analyzing the determinants of U.S. holdings of equities across a wide range of countries. In particular, we explore the role of information costs in determining the country distribution of U.S. investors' equity holdings using a comprehensive new data set on U.S. ownership of foreign stocks. We find that U.S. holdings of a country's equities are positively related to the share of that country's stock market that is listed on U.S. exchanges, even after controlling for capital controls, trade links, transaction costs, and historical risk-adjusted returns. We attribute this finding to the fact that foreign firms that list on U.S. exchanges are obliged to provide standardized, credible financial information, thereby reducing information costs incurred by U.S. investors. This obligation stems from U.S. investor protection regulations, which include stringent disclosure requirements, reconciliation of financial stat...

Institute, and Tilburg University for helpful discussions and comments. Part of this research was conducted while I was visiting M.I.T.Local return factors and turnover in emerging stock markets The paper shows that the factors that drive cross-sectional differences in expected stock returns in emerging equity markets are qualitatively similar to those that have been found in developed equity markets. In a sample of more than 1700 firms from 20 countries, I find that emerging market stocks exhibit momentum, small stocks outperform large stocks, and value stocks outperform growth stocks. There is no evidence that high beta stocks outperform low beta stocks. A Bayesian analysis of the return premiums shows that the combined evidence of developed and emerging markets strongly favors the hypothesis that similar return factors are present in markets around the world. Finally, the paper documents a strong cross-sectional correlation between the return factors and share turnover. Yet, it is unlikely that liquidity can explain the emerging market return premiums. 1. Introduction. There is growing empirical evidence that multiple factors are cross-sectionally correlated with average returns in the United States. Measured over long time periods, small stocks earn higher

We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 developed and emerging economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.