Risk Sharing and Asset Prices: Evidence From a Natural Experiment / Anusha Chari, Peter Blair Henry.

Format:

Book

Author/Creator:

Chari, Anusha.

Contributor:

National Bureau of Economic Research.

Henry, Peter Blair.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8988.

NBER working paper series no. w8988

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Risk Sharing and Asset Prices

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

When countries liberalize their stock markets, firms that become eligible for purchase by foreigners (investible), experience an average stock price revaluation of 10.4 percent. Since the covariance of the median investible firm's stock return with the local market is 30 times larger than its 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 3.4 percentage points, or roughly one third of the total effect; and 2) variation in the firm-specific response is directly proportional to the firm-specific change in systematic risk. The statistical significance of this proportionality persists after controlling for changes in expected future profits and index inclusion criteria such as size and liquidity.

Notes:

Print version record

June 2002.