Efficiency and the programs to develop capital markets: The Brazilian experience

Abstract

Recent studies suggest that the main avenue to obtain benefits of international portfolio diversification would be direct portfolio investments in the domestic securities of the various countries. There are many barriers to such investments, the most important being the nature of foreign capital markets. Given the potential for attracting foreign portfolio investments and more efficient mobilization of indigenous resources, many less developed countries (LDCs) have embarked upon programs to develop their local capital markets. Among LDCs, the Brazilian effort stands out as the most innovative and systematic. The efforts to develop the Brazilian market have been quite successful with positive effect on the mobilization and allocation of resources. It also exhibits the institutional- and other characteristics associated with developed markets. Further, the Sao Paulo exchange seems to be at least as efficient as most of the European markets. Unfortunately, the apparent shift since 1975 in government policy toward public sector dominance in the domestic savings transfer process may reverse the market development process.