Foreign Ownership Restrictions and Equity price Premiums: Explaining the High Cost of International Diversification

W. Bailey, C.Y. Peter and K. Jun-Koo

The A. Gary Anderson Graduate School of Management from The A. Gary Anderson Graduate School of Management. University of California Riverside

Abstract: Companies in many countries have designated shares restricted to locals and otherwise identical unrestricted shares available to foreigners. With the ever-increasing demand for international portfolio investments, these foreign ownership restrictions typically lead to large price premiums for unrestricted shares relative to otherwise identical restricted shares. The price premiums are a substantial additional cost to foreign portfolio investment. Using data from eleven countries with binding foreign ownership limits, we explore the relative pricing of restricted and unrestricted shares with a variety of concepts from the finance literature.

Keywords: INVESTMENTS; FINANCIAL MARKET; PRICING (search for similar items in EconPapers)
JEL-codes: F21 G12 G13 (search for similar items in EconPapers)
Pages: 53 pages
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:fth:caland:97-10

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