Describe the structural changes that occur in an Emerging Market as it moves from a Segmented market to an Integrated market (6 points):
Priced based on Coveriance with world market, Lower expected return, lower cost of funds. Increase in GDP, Productivity, and firm efficiency. Slightly higher correlations with world market. Capital flows of developed markets still remain more volatile than that of an emerging market.
transparacney in the markets is introduced minimizing or eliminating the effect of inside information barriers to foreign capital flow are removed withholding taxes are reduced and / removed the government encourages competition and privatization the governments implement a stable fiscal policy the governments implement a stable monetary policy… and so on…
- Privatization 2) Market efficiency …
the ones that readily comes to mind is relaxation of regulations(investor friendly environment). wherre do i go for 5 more??
These are not structural changes. There are a specific list of structural changes two of them 1) Privatization 2) Improvement in Market microstructure. I dont remember the rest
4 main financial effects of liberalization: 1) stock market: higher prices and lower costs of capital 2) Capital Flows: increase; volatility increases temporarily then decreases to levels of developed countries 3) Political Risk - declines resulting in lower cost of capital 4) Diversification - low corrrelations w/ world markets ( initial increases in correlations are small and increase slowly) Other economic effetcs: firm efficiency improves (corp governance) Comsumption is stable Growth in GDP Mostly good things