Global Growth Opportunities and Market Integration

Geert Bekaert, Campbell Harvey (), Christian Lundblad and Stephan Siegel ()

No 10990, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We measure a country's growth opportunities by investigating how its industry mix is priced in global capital markets, using price earnings ratios of global industry portfolios. We derive three sets of empirical results. First, these exogenous growth opportunities strongly predict future changes in real GDP and investment in a large panel of countries. This relation is strongest in countries that have liberalized their capital accounts, equity markets, and banking systems. Second, we re-examine the link between financial development, investor protection, capital allocation, and growth. We find that financial development and investor protection measures are much less important in aligning growth opportunities with growth than is capital market openness. Third, we formulate new tests of market integration and segmentation. Under integration, the difference between a country's local PE ratio and its global counterpart should not predict relative growth, but the difference between its "exogenous" global PE ratio and the world market PE ratio should predict relative growth.

JEL-codes: F30 F36 G15 O11 O57 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-dev and nep-fin
Note: AP
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Citations: View citations in EconPapers (6)

Published as Geert Bekaert & Campbell R. Harvey & Christian Lundblad & Stephan Siegel, 2007. "Global Growth Opportunities and Market Integration," Journal of Finance, American Finance Association, vol. 62(3), pages 1081-1137, 06.

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