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1、,9,The International Capital Market -The Stock Market (Chapter 13),Overview of International Stock Market,At year-end 2003, total market capitalization of the worlds equity markets stood at $31,948billionOf this amount, 89 percent is accounted for by the 31 developed countries.,The other 11% is acco
2、unted for by the market capitalization of developing countries in “emerging markets”.Latin AmericaAsiaEastern EuropeMideast/Africa,Overview of International Stock Market,Measures of Liquidity,The equity markets of the developed world tend to be much more liquid than emerging markets.Liquidity refers
3、 to how quickly an asset can be sold without a major price concession.The turnover ratio is the result of stock market transactions over a period of time divided by the size of the stock market.,Turnover Ratio in Developed Countries,(Year End 2003, transactions in USD/market capitalization in USD) S
4、pain 158Germany 130The United States 123Italy 122The United Kingdom 101,The Turnover Ratio in Developing Countries,(Year End 2003, transactions in USD/market capitalization in USD)Pakistan 497Indonisia 237Taiwan 185India 139China 83Argentina 6,Measures of Market Concentration,Emerging Markets tend t
5、o be much more concentrated in relatively few companies.That is, a few issues account for a much larger percentage of the overall market capitalization in emerging markets than in the equity markets of the developed world.,Market Structure, Trading Practices, and Costs,Primary MarketsShares offered
6、for sale directly from the issuing company.Secondary MarketsProvide market participants with marketability and share valuation.,North American Equity Market Benchmarks,European Equity Market Benchmarks,Asia/ Pacific Rim Equity Market Benchmarks,Reasons for International Equity Trading,Globally integ
7、rated equity trading developed since 1980s. Following are the reasons:Benefits of international portfolio investmentCapital markets becomes more liberalizedComputer and telecommunication developmentMNCs realizing the benefits of sourcing capital internationally,Cross-Listing of Shares,Cross-Listing
8、refers to a firm having its equity shares listed on one or more foreign exchanges.The number of firms doing this has exploded in recent years.,Advantages of Cross-Listing,It expands the investor base for a firm.Establishes name recognition for the firm in new capital markets, paving the way for new
9、issues.May offer marketing advantages.May mitigate possibility of hostile takeovers.,American Depository Receipts,Foreign stocks often trade on U.S. exchanges as ADRs.It is a receipt that represents the number of foreign shares that are deposited at a U.S. bank.The bank serves as a transfer agent fo
10、r the ADRs,American Depository Receipts,There are many advantages to trading ADRs as opposed to direct investment in the companys shares:ADRs are denominated in U.S. dollars, trade on U.S. exchanges and can be bought through any broker.Dividends are paid in U.S. dollars.Most underlying stocks are be
11、arer securities, the ADRs are registered.,Macroeconomic FactorsExchange Rates Industrial Structure,Factors Affecting International Equity Returns,Factors Affecting International Equity Returns,The data do not support the notion that equity returns are strongly influenced by macro factors.That is cor
12、respondent with findings for U.S. equity markets.,Macroeconomic Factors Affecting International Equity Returns,Macroeconomic Factors Affecting International Equity Returns,Exchange Rates,Exchange rate movements in a given country appear to reinforce the stock market movements within that country.One should be careful not to confuse correlation with causality.,Industrial Structure,Studies examining the influence of industrial structure on foreign equity returns are inconclusive.,
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