Chapter 3 - Measurement and Impact of Equity Market Liberalization

Abstract

During the globalization era, the liberalization of domestic financial markets has been among the most important national policy decisions. In particular, equity market liberalization, the focus of this chapter, provides foreign investors the access to domestic equity securities and domestic investors the right to transact in foreign equity securities. If liberalization is effective, it leads to market integration, the notion that assets of comparable risk are priced comparably regardless of the country in which they reside. The former is regulatory decision, whereas the latter is an economic outcome. This entry summarizes research on the measurement of liberalization, the implications for market integration, and the fundamental impact on both the financial and real sectors of developing countries.