Journal of Financial and Quantitative Analysis Vol. 50 No. 5 2015
The Impact of Investability on Asset Valuation
Abstract
We develop an international asset pricing model to measure the impact of investability constraints on asset pricing. For a sample of 18 emerging markets, we use Standard & Poor’s investable weight factor (IWF) to show a 26.33% reduction in the cost of equity capital when non-investable firms become partially investable, with a further 12.51% reduction when partially investable firms become unrestricted. We demonstrate the generality and usefulness of the IWF by examining stocks with global/American depositary receipts and foreign institutional holdings as alternate investability proxies. Our results provide strong evidence of the economic benefits of market liberalization policies.
- DOI
- 10.1017/s002210901500037x
- Volume
- 50
- Issue
- 5
- Pages
- 1135-1163
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref