Institutional Investors and Asset Pricing in Emerging Markets

Author/Editor:

Elaine Karen Buckberg

Publication Date:

January 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper presents a new theory of asset pricing intended to address why other developing country equity markets responded so strongly to the Mexican devaluation, while the world’s major stock markets were unmoved. This phenomenon can be explained if investors follow a two-step portfolio allocation process, first determining what share of their portfolio to invest in developing countries, then allocating those funds across the emerging markets. For 12 of 13 markets studied, the one-factor CAPM is rejected in favor of a two-factor asset pricing model, including both a broad emerging markets portfolio and the global market portfolio.

Series:

Working Paper No. 1996/002

Subject:

Asset allocation Asset and liability management Asset prices Emerging and frontier financial markets Financial institutions Financial markets Prices Stock markets Stocks

English

Publication Date:

January 1, 1996

ISBN/ISSN:

9781451841718/1018-5941

Stock No:

WPIEA0021996

Pages:

25

Please address any questions about this title to publications@imf.org