EFFECTS OF UNDERDEVELOPED EQUITY MARKET ON INVESTMENT

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Abstract

This paper uses a variant of the Allen, Bernardo, and Welch (2000) model in an open market economy to analyze the effects of equity market development on investment. A country’s underdeveloped equity market may discourage investors from investing in the country. Consequently, an underdeveloped equity market may contribute to home equity bias. Asset prices in a less developed equity market tend to be lower. The results suggest that a government may need to facilitate the development of its equity market to attract investment.

Keywords: Asset Prices, Deadweight Costs, Home Equity Bias

How to cite this paper: Muzere, M. L. (2007). Effects of underdeveloped equity market on investment. Corporate Ownership & Control, 4(4-1), 164-172. https://doi.org/10.22495/cocv4i4c1p1