wouldn’t the ADR statement mean integration exists?
I am still going over the chapter. I havent figured out integration - liberalization link from CFAI yet
I actually, disagree with ws. Issuing ADR oversees would be a sign of liberalization, ADR allows foreigners to invest in the country that is opening its borders (i.e., starting liberalization process). CFAI, Reading 27, p. 196 “…they define capital market liberalization using three alternative measures: official regulatory liberalization, the earliest date of either an ADR issue, country fund launch, or an official liberalization date…” integration will lead to assets having similar prices in different markets, liberalization opens access to foreign markets through foreign dirrect investment liberalization usually takes place first, but both liberalization and integration can occur concurently
volkovv! Thanks! Can you pinpoint me to a place in this chapter that talks about difference of integration and liberalization? I cant seem to find it
^ exactly and it’s a LOS!
I don’t think there is a single palce in that reading, its prety much Sections 2,3,4
sickel2 Wrote: ------------------------------------------------------- > i think liberalization pertains to economics, and > integration applies to the financial markets. I would agree with that. Economic can be liberalized, finanical market can be intergrated. Allowing ADR is letting finanical market instrument to be accessed by outside investor. I remember when ChinaTelecom issed ADR in HongKong,(intergrating) and majority of its holding were still held by the government. (not liberiazlied)
ws Wrote: ------------------------------------------------------- > sickel2 Wrote: > -------------------------------------------------- > ----- > > i think liberalization pertains to economics, > and > > integration applies to the financial markets. > > I would agree with that. Economic can be > liberalized, finanical market can be intergrated. > Allowing ADR is letting finanical market > instrument to be accessed by outside investor. I > remember when ChinaTelecom issed ADR in > HongKong,(intergrating) and majority of its > holding were still held by the government. (not > liberiazlied) after reading both schweser in CFAI i have to agree. ADR represents both integration and liberalization. If it will be the question on exam i will go with liberalization but i can see how it can be the integration. In general economic liberalization is privatization of firsm and bank reforms. Financial liberalization is market integration. IMHO
i dont think an ADR is guaranteed to represent intengration CSK. think of it this way: an ADR represents a portion of shares that are separated from the main listing in the foreign country (in this case, say japan). because it is separate, it may be subject to market influences not present in the foreign country. for example, if the nintendo ADR shares are in high demand in the US after the wii comes out, but there is a limited supply, then the shares may trade up very high. there will be a larger number of shares in japan, so even though the shares may go up, they won’t go through the roof like they do in the US due to low supply. thus, the integration will not be present, because the same asset will have two different returns (US = lower expected return after prices rise) for the same level of risk. i suppose you could argue that an ADR is not the same listing, so integration does not count, but i think the above is correct. “Financial liberalization is market integration.” No. Liberalization = free flow of capital across international borders without restriction. Integration = similar assets of the same risk offer the same expected return, irrespective of the country of their origin. a country can be liberalized without being integrated for a variety of reasons, including investor distrust of the foreign government, tax issues, dividend with holdings (turns investors away), home bias, etc. even most developed world markets that are fully liberalized are not entirely integrated.
point taken. Financial liberalization = free flow of capital across international borders without restriction. Economic liberalization - bank reforms and privatization I agree that ADR might not represent integration because of constraints. good points overall. Thanks.