Register  |  Login  |  Inquiries  |  Sitemap
Advanced Search
Journal of Economic Integration 2005 March;20(1) :68-92.
DOI: https://doi.org/10.11130/jei.2005.20.1.68
Trade Opening and the Behavior of Emerging Stock Market Prices
Parantap Basu and 
Matthew R. Morey 
Fordham University
Pace University
Copyright ©2005 Journal of Economic Integration
ABSTRACT
In this paper we develop a model that explores the effect of trade openness on stock price behavior. The model predicts that stock returns show non-zero serial correlation in a closed economy. However, once the country opens on the trade front, the stock returns show zero serial correlation. The reason for the difference is that once the country opens itself to trade, the growth process becomes self-sustained due to optimal use of imported intermediate inputs. Stock prices reflect this gain in productive efficiency by displaying a random walk behavior. The model also establishes that financial opening alone without trade opening will not lead to gain in efficiency in the stock prices.

JEL Classification: G12, F41

Keywords: Trade Liberalization | Emerging Stock Markets | Stock Market Efficiency | Trade Openness
 
REFERENCE
1. Basu, P., 1990, "A Martingale Theory of Asset Prices in a Production Economy", Mathematical Social Sciences, Vol.20, 1990, pp. 215-225.
2. Bardhan, P., 1970, Economic Growth, Development and Foreign Trade, Wiley: New York, NY.
Editorial Office
Center for Economic Integration, Sejong Institution, Sejong University, 209, Neungdong-Ro, Gwangjin-Gu,
Seoul, 05006, Korea
TEL : +82-2-3408-3338    FAX : +82-2-3408-3338   E-mail : jei@sejong.ac.kr
Browse Articles |  Current Issue |  For Authors and Reviewers |  About
Copyright© by Center for Economic Integration. All right reserved.