A Liberalization Spillover: From Equities to Loans

Xin Liu, Shang-Jin Wei and Yifan Zhou

No 27305, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The opening of equity markets to foreign investment appears to generate an enormously large positive growth effect (see Bekaert, Harvey, and Lundblad, 2005) in spite of a relatively small role of such markets for financing investment in most economies. We propose a possible spillover channel from equity market opening to lower costs of bank loans, which helps to explain this puzzle. From analyzing bank loan data associated with China’s introduction of the Qualified Foreign Institutional Investors (QFII) program, we find significant support for this channel. Furthermore, we show that a reduction in the risk premium is an important mechanism.

JEL-codes: F3 G15 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cna and nep-fdg
Note: AP IFM
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Citations: View citations in EconPapers (5)

Published as Xin Liu & Shang-Jin Wei & Yifan Zhou, 2024. "A Liberalization Spillover: From Equities to Loans," Journal of Financial and Quantitative Analysis, vol 59(1), pages 395-433.

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