During the last two decades, liberalization of capital markets in emerging markets was a common trend. Liberalization caused an increased responsiveness to world factors. Indeed, as argued in this paper, emerging markets are now behaving like certain developed markets' asset classes. This study...

We test whether (i) the CAPM, (ii) the Fama amp; French model, and (iii) the Carhart model are able to price equity collectively across Europe. We find that all models explain a large percentage of the variation in equity returns, not only for the majority of countries considered but also for...

I study how stock market liberalization changes an emerging market's cost of capital.I do so in a Lucas economy with two dividend trees. One dividend tree represents the emerging market's dividends while the other tree represents the dividends paid by all other countries. I solve for equilibrium...

We examine the relationship between stock extreme illiquidity and the implied cost of capital for firms from 45 countries. We document robust evidence that firms whose stocks have a greater potential for extreme illiquidity realizations suffer from higher cost of capital. A one standard...

Cross-border financial flows arise when (otherwise identical) countries differ in their abilities to use assets as collateral to back financial contracts. Financially integrated countries have access to the same set of financial instruments, and yet there is no price convergence of assets...

The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic effects on international asset prices and international capital flows. These are difficult to explain in conventional models, but arise naturally in a model with collateral. This paper develops a...

This paper examines the association between the default risk of foreign bank subsidiaries in developing countries and their parents during the global financial crisis, with the purpose of determining the size and sign of this correlation and, more importantly, understanding what factors can help...

We show that cross-border financial flows arise when countries differ in their abilities to use assets as collateral. Financial integration is a way of sharing scarce collateral. The ability of one country to leverage and tranche assets provides attractive financial contracts to investors in the...

This short note is aimed to open discussion. Asset pricing models assume capital markets are competitive, but then my questions were: Why would a diversified investor be willing to accept a supposedly lower equilibrium risk adjusted rate of return in emerging markets (like Argentina), that the...

We investigate the existence and significance of a cross-sectional relation between idiosyncratic volatility and expected returns at the global level by introducing a global idiosyncratic volatility measure and globally diversified test assets. We find that the portfolios with the highest and...