Risk Sharing and Asset Prices: Evidence From a Natural Experiment
|Publisher:||Center on Democracy, Development, and Rule of Law|
|Abstract:||When countries liberalize their stock markets, firms that become eligible for foreign purchase (investible), experience an average stock price revaluation of 15.1 percent. Since the historical covariance of the average investible firm’s stock return with the local market is roughly 200 times larger than its historical covariance with the world market, liberalization reduces the systematic risk associated with holding investible securities. Consistent with this fact: (1) the average effect of the reduction in systematic risk is 6.8 percentage points, or roughly two fifths of the total revaluation; and (2) the firm-specific revaluations are directly proportional to the firm-specific changes in systematic risk.|
|Appears in Collections:||Peter Henry's Collection|
Files in This Item:
|PH Risk Sharing 2005.pdf||Peter Henry Risk Sharing and Asset Prices||173.59 kB||Adobe PDF||View/Open|
Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.