The William Davidson Institute at the University of Michigan Business School published a working paper titled "Foreign Speculators and Emerging Equity Markets" by Geert Bekaert and Campbell R. Harvey, number 79, August 1997. The paper examines the impact of foreign speculative activity on the cost of capital and market volatility in emerging equity markets. The authors propose a cross-sectional time-series model to assess the effects of capital market liberalizations, such as the offering of depositary receipts, country funds, and other financial instruments, on emerging markets. They also examine the impact of capital market liberalizations on the correlation between emerging equity market returns and world market returns. The paper argues that while the cost of capital tends to decrease after capital market liberalizations, the effect is economically and statistically weak. The effects on volatility and correlation are less robust. The authors also examine the effects of increased foreign speculative activity and market integration on the correlation between emerging markets and the world market. They find that correlations may increase, but the evidence is not conclusive. The paper outlines the role of speculators in emerging markets, the effects of capital market liberalizations, and the measurement of volatility, correlation, and the cost of capital. The authors use a variety of empirical techniques, including event studies and GARCH models, to analyze the data. They find that the cost of capital is related to the covariance with world market returns in integrated capital markets. The paper also discusses the effects of capital flows, the introduction of country funds and ADRs, and the impact of foreign ownership on market volatility and the cost of capital. The authors conclude that while the cost of capital may decrease after capital market liberalizations, the effects on volatility and correlation are less robust. The paper provides a comprehensive analysis of the impact of foreign speculative activity on emerging equity markets and offers insights into the economic implications of capital market liberalizations.The William Davidson Institute at the University of Michigan Business School published a working paper titled "Foreign Speculators and Emerging Equity Markets" by Geert Bekaert and Campbell R. Harvey, number 79, August 1997. The paper examines the impact of foreign speculative activity on the cost of capital and market volatility in emerging equity markets. The authors propose a cross-sectional time-series model to assess the effects of capital market liberalizations, such as the offering of depositary receipts, country funds, and other financial instruments, on emerging markets. They also examine the impact of capital market liberalizations on the correlation between emerging equity market returns and world market returns. The paper argues that while the cost of capital tends to decrease after capital market liberalizations, the effect is economically and statistically weak. The effects on volatility and correlation are less robust. The authors also examine the effects of increased foreign speculative activity and market integration on the correlation between emerging markets and the world market. They find that correlations may increase, but the evidence is not conclusive. The paper outlines the role of speculators in emerging markets, the effects of capital market liberalizations, and the measurement of volatility, correlation, and the cost of capital. The authors use a variety of empirical techniques, including event studies and GARCH models, to analyze the data. They find that the cost of capital is related to the covariance with world market returns in integrated capital markets. The paper also discusses the effects of capital flows, the introduction of country funds and ADRs, and the impact of foreign ownership on market volatility and the cost of capital. The authors conclude that while the cost of capital may decrease after capital market liberalizations, the effects on volatility and correlation are less robust. The paper provides a comprehensive analysis of the impact of foreign speculative activity on emerging equity markets and offers insights into the economic implications of capital market liberalizations.