The Dynamics of Emerging Stock Markets (eBook)

189769_1_En_BookFrontmatter_OnlinePDF 1
189769_1_En_1_Chapter_OnlinePDF 13
Chapter 1: Emerging Markets: Overview and Performance Analysis 13
Basics of Emerging Markets 13
The Concept of Emerging Markets 14
Dispersions Among Emerging Markets 15
Capital Markets 17
Emerging Markets´ Access to External Financing 18
Bond MarketsBond markets 19
Syndicated Loan Markets 20
Stock Markets 21
Risk and Return Characteristics of Emerging Stock Markets 23
Risk and Returns 24
Correlation 26
The Process of Market Integration and Risk-return Tradeoff 28
The Case of Complete Integration 28
The Case of Partial Market Integration 29
Specific Risks 30
Political Risk 30
Liquidity Risk 31
Currency Risk 31
Investing in Emerging Markets: Why and How? 32
Advantages of Emerging Markets 32
Risk Diversification Benefits 32
A More Maturing Asset Class in Emerging Markets 34
Accessibility to Foreign Investors 34
Market Entry Methods 35
The Future of Emerging Market Investments 36
Summary 38
References 39
189769_1_En_2_Chapter_OnlinePDF 40
Chapter 2: Dynamic Process of Financial Reforms 40
Oil Shocks and Economic Recession in the 1970s 40
Financial Liberalization as a Solution to Economic Development 41
Liberalization Methods and Indicators 42
Official Versus Effective Liberalizations 42
Liberalization Indicators 43
Foreign Capital Flows 43
American Depositary ReceiptsAmerican Depositary Receipts (ADRs) 46
Closed-End Country Funds 48
Dynamics of Liberalization Process 50
The Gradual Process of Financial Liberalization 50
The Intensity of Liberalization 51
Challenges in Measuring Liberalization Effects 54
Financial Impacts of Liberalization 55
Cost of Capital 56
Observed Volatility 58
Unconditional Cross-Market Correlation 61
Stock Market Development 64
Summary 64
References 65
189769_1_En_3_Chapter_OnlinePDF 66
Chapter 3: Asset Pricing Models 66
Introduction 66
The Capital Asset Pricing Model 67
Theoretical Framework of the Model 67
The Portfolio Theory 67
The Market Model 68
The CAPM 69
Hypotheses 69
Derivation of the Model 69
Systematic Risk Versus Specific Risk 71
Extensions of the Original Model 71
Empirical Tests of the CAPM 73
Arbitrage Pricing Theory 75
Theoretical Framework of the Model 75
Model Hypotheses 76
The Arbitrage Portfolio 77
Derivation of the Valuation Relationship 77
APT and CAPM 78
Extensions of the APT: Towards the Equilibrium APT 79
Empirical Tests of the APT 79
Particularities of Asset Pricing in Emerging Markets 80
Summary 81
References 82
189769_1_En_4_Chapter_OnlinePDF 83
Chapter 4: Threshold Stock Price Adjustments 83
Introduction 83
Economic Justifications of Nonlinearity in Stock Price Dynamics 84
Market Microstructure Approach 84
Behavioral Finance Approach 85
Nonlinearity and Emerging Stock Markets 86
Threshold Econometric Modeling 88
Brief Presentation of Threshold Models 88
Mixing Tests 90
Empirical Results and Discussions 91
Data and Preliminary Tests 91
Mixing Test Results 92
Estimation of ESTECMs 92
Essays in Nonlinear Modeling of Oil and Stock Market Linkages 95
Summary 98
References 99
189769_1_En_5_Chapter_OnlinePDF 100
Chapter 5: Evolving Stock Market Efficiency 100
Theory of Stock Market Efficiency 100
The Concept 101
Consequences of the Market Efficiency 102
Three Forms of Informational Efficiency 104
Empirical Evidence 105
Anomalies to Market Efficiency 106
Informational Efficiency in Emerging Stock Markets 107
Challenges to Market Efficiency 108
Usual Tests and Evidence on Market Efficiency 110
Autocorrelation Tests 110
Run Tests 110
Random Walk Tests 111
Financial Liberalization and Market Efficiency 112
Structural Reforms and Hypothesis of Evolving Efficiency 114
Rationale of the Evolving Efficiency 114
Econometric Specification 115
Weak Form Efficiency and Transaction Costs 117
Results and Discussions 118
Summary Statistics 118
The Evidence of Time-Varying Predictability 119
Argentina 121
Brazil 122
Malaysia 122
Mexico 123
Thailand 123
The Effect of Financial Liberalization 124
Implications of the Results 128
Summary 128
References 128
189769_1_En_6_Chapter_OnlinePDF 131
Chapter 6: Stock Market Volatility 131
Introduction 131
Financial Risk and Its Assessment 132
Empirical Approach 132
Probabilistic Approach 133
Behavior and Sources of Emerging Market Volatility 134
Time-Varying Volatility Models 135
Linear ARCH Models 136
Nonlinear ARCH Models 138
EGARCH Models 138
TGARCH Models 138
ARCH-M Models 139
Volatility Modeling and Tests 140
ARCH Test 140
Estimation Procedure 140
Empirical Evidence on Emerging Market Volatility Using GARCH Modeling Approach 141
Empirical Applications of GARCH Modeling 142
Data and Preliminary Analysis 142
GARCH-Based Models for Emerging Market Volatility 145
Summary 150
References 151
189769_1_En_7_Chapter_OnlinePDF 153
Chapter 7: Globalization and Market Integration 153
Introduction 153
The Notion of Financial Integration 155
The Law of One Price 156
Capital Mobility 156
Substitutability 156
Factors Increasing Financial Integration 158
New Technologies 159
Market Competition 159
Derivatives 159
The Institutionalization of Savings 160
Advantages and Disadvantages of Financial Integration 160
Benefits of Financial Integration 160
Risk Diversification and Efficiency of Financial Markets 160
Better Allocation of Capital (Economic Efficiency) 161
Economic Growth 162
Disadvantages of Financial Integration 162
Assessment of the Degree of Financial Integration 163
Qualitative Aspects of Financial Markets Integration 164
Empirical Aspects of Financial Integration 166
An Empirical Assessment of Financial Integration of Emerging Stock Markets in Latin America 168
Methodology 168
Data and Results 170
Summary 173
References 174
189769_1_En_8_Chapter_OnlinePDF 175
8: Dynamics of Market Integration and International Asset Pricing 175
Introduction 175
Basic Problems of Asset Pricing in an International Environment 176
The Relationships of the PPP 176
Absolute PPP and the Law of One Price 177
Relative PPP 177
The International Asset Pricing 178
Equilibrium International Asset Pricing Model (ICAPM) 179
International Versus Domestic CAPM 181
Assumptions and Notations 181
Pricing Error 182
The ICAPM: A Tool for Analysis of Portfolio Choice and Market Integration 183
An Empirical Investigation of the Integration of an Emerging Market into the World Market 185
Methodology 186
Data and Results 188
Data 188
Time-Varying Degree of Integration 189
Structural Breaks 189
Summary 191
References 192
189769_1_En_9_Chapter_OnlinePDF 193
9: International Financial Crisis and Contagion 193
Introduction 193
Financial Crises and Emerging Markets 194
Brief Overview of Past Financial Crises 194
How Does the Current International Financial Crisis Affect Emerging Market Dynamics? 195
Contagion in Emerging Markets 197
Contagion Definitions and Factors 197
Contagion Effects Within the Current Financial Crisis 198
Contagion Tests and Previous Findings 199
Empirical Investigation 200
Data Used and Statistical Properties 201
Contagion Tests 202
Cointegration Tests 203
Granger Causality Test 204
Contagion Modeling with VAR Model 205
Summary 208
References 209
189769_1_En_BookBackmatter_OnlinePDF 211
: Index 211