Do foreign investors insulate firms from local shocks? Evidence from the response of investable firms to monetary policy

Bill B. Francis, Delroy M. Hunter and Patrick Kelly

Journal of Empirical Finance, 2020, vol. 58, issue C, 386-411

Abstract: Extant research shows that stock returns of investable firms are highly sensitive to foreign market and global information shocks, suggesting that having foreign investors might insulate investable firms from shocks to local fundamentals. Examining 24 emerging markets, we find that both investable and non-investable firms are sensitive to local monetary policy shocks. This allays the concern that emerging-market opening reduces the efficacy of local monetary policy. We also find that in 11 countries (46% of our country-sample), investable firms are more sensitive to local shocks than non-investable firms. Differences in leverage, stock liquidity, size, domestic product-market exposure, or industry cyclicality do not drive this finding.

Keywords: Investable stocks; Non-investable stocks; Local shocks; Monetary policy; Structural VAR; Price efficiency; Financial liberalization (search for similar items in EconPapers)
JEL-codes: E52 F36 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:58:y:2020:i:c:p:386-411

DOI: 10.1016/j.jempfin.2020.07.003

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