International Equity INTERNATIONAL Markets

FINANCIAL MANAGEMENT

Second Edition

EUN / RESNICK

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Measures of Liquidity

The equity arkets of the de!elo"ed #orld tend to $e uch ore liquid than e er%in% arkets&

Liquidity refers to ho# quickly an asset can $e sold #ithout a a'or "rice concession&

So( #hile in!est ents in e er%in% arkets ay $e "rofita$le( the focus should $e on the lon% ter &

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Measures of Market Concentration

E er%in% Markets tend to $e uch concentrated than our arkets&

ore

Concentrated in relati!ely fe# co "anies&

That is( a fe# issues account for a uch lar%er "ercenta%e of the o!erall arket ca"itali)ation in e er%in% arkets than in the equity arkets of the de!elo"ed #orld&

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Market Structure( Tradin% *ractices( and Costs

*ri ary Markets

Shares offered for sale directly fro co "any& *ro!ide arket "artici"ants #ith share !aluation&

the issuin%

Secondary Markets

arketa$ility and

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Market Structure( Tradin% *ractices( and Costs

Market +rder

,n order to your $roker to $uy or sell share i ediately at the arket "rice& ,n order to your $roker to $uy or sell at the at a "rice you #ant( #hen and if he can&

Li it +rder

If i ediate e-ecution is "rice( use a arket order&

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ore i "ortant than the

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Market Structure( Tradin% *ractices( and Costs

.ealer Market

The stock is sold $y dealers( #ho stand ready to $uy and sell the security for their o#n account& In the U&S&( the +TC arket is a dealer arket& +r%ani)ed e-chan%es ha!e s"ecialists #ho atch $uy and sell orders& /uy and sell orders ay %et atched #ithout the s"ecialist $uyin% and sellin% as a dealer& Co "uters
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,uction Market

,uto ated E-chan%es

atch $uy and sell orders&

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0orld Equity /ench ark Shares

0orld Equity /ench ark Shares 10E/S2

Country3s"ecific $askets of stocks desi%ned to re"licate the country inde-es of 45 countries& 0E/S are su$'ect to U&S& SEC and IRS di!ersification require ents& Lo# cost( con!enient #ay for in!estors to hold di!ersified in!est ents in se!eral different countries&

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Tradin% in International Equities

Ma%nitude of International Equity Tradin% Cross3Listin% of Shares 6ankee Stock +fferin%s The Euro"ean Stock Market , erican .e"ository Recei"ts

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Ma%nitude of International Equity Tradin%

.urin% the 4788s #orld ca"ital arkets $e%an a trend to#ard %reater %lo$al inte%ration& .i!ersification( reduced re%ulation( i "ro!e ents in co "uter and co unications technolo%y( increased de and fro MNCs for %lo$al issuance&

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Cross3Listin% of Shares
Cross-Listing refers to a fir ha!in% its equity shares listed on one or ore forei%n e-chan%es& The nu $er of fir s doin% this has e-"loded in recent years&

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,d!anta%es of Cross3Listin%
It e-"ands the in!estor $ase for a fir & Esta$lishes na e reco%nition for the fir in ne# ca"ital arkets( "a!in% the #ay for ne# issues& May offer arketin% ad!anta%es& May iti%ate "ossi$ility of hostile takeo!ers&

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6ankee Stock +fferin%s

The direct sale of ne# equity ca"ital to U&S& "u$lic in!estors $y forei%n fir s&

*ri!ati)ation in South , erica and Eastern Euro"e Equity sales $y Me-ican fir s tryin% to cash in on N,9T,

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The Euro"ean Stock Market

E,S.,: is a sort of a Euro"ean N,S.,: that $inds to%ether national e-chan%es& UK( ;er any( 9rance( S#it)erland( ,ustria( Italy( /el%iu ( .en ark( *ortu%al( 9inland( ;reece( Lu-e $our%( and the Netherlands& ,ll tradin% is deno inated in the euro&

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, erican .e"ository Recei"ts

9orei%n stocks often trade on U&S& e-chan%es as ,.Rs& It is a recei"t that re"resents the nu $er of forei%n shares that are de"osited at a U&S& $ank& The $ank ser!es as a transfer a%ent for the ,.Rs

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, erican .e"ository Recei"ts

There are any ad!anta%es to tradin% ,.Rs as o""osed to direct in!est ent in the co "any<s shares=

,.Rs are deno inated in U&S& dollars( trade on U&S& e-chan%es and can $e $ou%ht throu%h any $roker& .i!idends are "aid in U&S& dollars& Most underlyin% stocks are $earer securities( the ,.Rs are re%istered&

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9actors ,ffectin% 9actors ,ffectin% International Equity International Returns Equity Returns
Macroecono ic 9actors E-chan%e Rates Industrial Structure

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Macroecono ic 9actors ,ffectin% International Equity Returns

The data do not su""ort the notion that equity returns are stron%ly influenced $y acro factors& That is corres"ondent #ith findin%s for U&S& equity arkets&

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E-chan%e Rates
E-chan%e rate o!e ents in a %i!en country a""ear to reinforce the stock arket o!e ents #ithin that country& +ne should $e careful not to confuse correlation #ith causality&

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Industrial Structure

Studies e-a inin% the influence of industrial structure on forei%n equity returns are inconclusi!e&

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End Cha"ter Ei%ht

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