The Impact of Investability on Asset Valuation


Authors: Errunza, V.Ta, H.

Publication: Journal of Financial and Quantitative Analysis, Vol. 50, No. 5, 2015


We develop an international asset pricing model to measure the impact of investability constraints on asset pricing. For a sample of 18 emerging markets, we use Standard & Poor’s investable weight factor (IWF) to show a 26.33% reduction in the cost of equity capital when non-investable firms become partially investable, with a further 12.51% reduction when partially investable firms become unrestricted. We demonstrate the generality and usefulness of the IWF by examining stocks with global/American depositary receipts and foreign institutional holdings as alternate investability proxies. Our results provide strong evidence of the economic benefits of market liberalization policies.

Read full article: Journal of Financial and Quantitative Analysis, December 9, 2015