UNITED-STATES EQUITY INVESTMENT IN EMERGING STOCK MARKETS

This article examines U.S. equity flows to emerging stock markets from 1978 to 1991 and draws three main conclusions. First, despite the recent increase in U.S. equity investment in emerging stock markets, the U.S. portfolio remains strongly biased toward domestic equities. Second, of the fraction of the U.S. portfolio that is allocated to foreign equity investment, the share invested in emerging stock markets is roughly proportional to the share of the emerging stock markets in the global market capitalization value. Third, the volatility of U.S. transactions in emerging-market equities is higher than in other foreign equities. The normalized volatility of U.S. transactions appears to be falling over time, however, and we find no relation between the volume of U.S. transactions in foreign equity and local turnover rates or volatility of stock returns.