Browsing by Author "Poshakwale, Sunil S."
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Item Open Access Conflicts of interest in IPOs: case of investment banks - a systematic review(Cranfield University, 2008) Neupane, S.; Poshakwale, Sunil S.Since the burst of the internet bubble there is a great deal of interest in the way investment bank prices and allocates initial public offerings (IPOs). The additional scrutiny and spotlight is also because of the dominance of bookbuilding mechanism, which gives complete discretion in terms of allocation and pricing to underwriters, and the huge amount of money left on the table by the issuers, especially during the internet bubble period. Numerous press stories and law suit by investors and issuers alleged conflicts of interest by investment banks at the expense of issuers and investors. On the basis of scoping study we identified five areas to examine conflicts of interest: laddering, spinning, relationship banking, profit sharing allocation and allocation to affiliated funds. The findings of the systematic review show that very limited research has been done on the areas identified. Moreover, there is almost no evidence available to examine the behaviour of investment banks post internet bubble burst. Likewise, very limited evidence is available from countries other than United States. From whatever limited research has been done in these areas there does seem to be enough evidence to suggest that investment banks have been involved in activities that is in conflict with their responsibilities and duties. There is clear evidence of wrong doing by investment banks in US during the internet bubble period by being involved in spinning, laddering and profit sharing allocations. There is not much evidence available at the moment to charge the underwriters of exploiting issuers and investors through the use of affiliated banks, venture capitalists and mutual funds. There is a great need to examine the behaviour of investment banks not only for the sake of the stability of the financial markets but also for the financial intermediaries themselves as unnecessary regulations undermine the efficient operations of financial markets.Item Open Access The consequences of financial regulation.(2017-10) Aghanya, Daniel Efe; Poshakwale, Sunil S.; Agarwal, VineetGiven the importance of the financial services for capital accumulation, financial stability, and global financial intermediaries, the last decade has witnessed widespread calls for vigilant regulation of the sector, especially since 2007 to 2009 financial crisis. This has reinvigorated the debates on the economic benefits and costs of regulating the financial services. In this work, I examine the impact of financial regulation on the financial sector to better understand its influence on compliance costs, quality of financial reporting, and risk-taking, as well as the wider impact on the stock market liquidity and price informativeness. I also examine the impact of the UK’s decision to leave the European Union (BREXIT) on the UK stock market and industry. In the first paper, I review the empirical evidence on the literature on financial regulation published over the past thirty-five years with the aim: (1) to extend my understanding of its impact on the financial sector, (2) evaluate whether the regulation achieves the purpose it was designed, and (3) provide insights and suggestions for future research. I find several useful insights have been generated over the past two decades. Despite this progress, I find that most empirical studies were done in the United States, research on other regulatory context is under-researched. Further, most empirical research on costs of regulation exclude the financial sector, and we know that this sector is highly regulated. There is a need for more empirical research to provide insight on the regulatory cost burden to the financial sector. In the second paper, I examine how the Statutory Audit and Corporate Reporting Directives (SACORD) affect the compliance costs, risk-taking and quality of financial reporting of the EU banks. Using a natural experiment, I find that post SACORD, compliance costs of the EU banks increase by 11 to 26 percent. Further, there is a significant increase in risk-taking and a decline in the reporting quality. I conclude that as far as the EU banks are concerned, these regulations do not appear to have the desired effects of improving the reporting quality and constraining risk-taking. In the third paper, I investigate the impact of the MiFID on stock price informativeness and liquidity in the European Union (EU). Using data from 28 EU countries and the Difference in Differences approach, I find that post-MiFID the stock prices reflect greater firm-specific information and the market becomes more liquid. Consistent with the ‘Hysteresis Hypothesis’ the evidence shows that the impact of MiFID regarding price informativeness is greater for countries that have superior quality of regulation. The results are robust with respect to the choice of price informativeness and liquidity proxies as well as the control variables. Finally, in the fourth paper, I analyse the impact of UK referendum outcome (Brexit) on stock prices, along three key arguments made by proponents. I document that restricting EU labour movement is associated with a decline in market value by 9.64% to 10.35% over a 10-day event window. Further, sectors with a majority of their business operations outside the EU fared better than sectors that requires a lot of workforce from the EU. I find evidence that highly regulated sectors benefit more from expected deregulation of EU-derived laws except for the financial institutions. Additionally, internationally focused companies’ performed better than domestically focused firms. In sum, my evidence shows that the market expectations about labour restrictions, streamlining regulation and trade policies significantly affect firm values.Item Open Access Corporate Governance and firm value: evidence from Colombia and Mexico(Cranfield University, 2014-12) Davila, Juan Pablo; Poshakwale, Sunil S.This research is the result of the author’s quest to answer the question whether Corporate Governance is effective in Emerging Markets. Literature on Corporate Governance in the emerging markets of Latin America is limited mostly due to the relatively slower development of capital markets and the late adoption of corporate governance principles. Corporate Governance laws, which largely follow Sarbanes Oxley guidelines, were published and implemented in the mid 00´s and no research has checked their impact on corporate value in Latin America. This research reports compromises two empirical projects. The first project focused on the relationship between boards of directors attributes such size and composition, Corporate Governance law and firm value for Colombia. The second project focused on another Corporate Governance variable, CEO Duality and tested whether it has had any impact in Mexico. This second project also studied whether board attributes such as size and composition and Corporate Governance law were related to firm value. Based on the listed companies from Colombia and Mexico for the years 2001 to 2012 the author found no relationship between board size or composition and firm value. Results from Mexico, where CEO duality is allowed showed that it has no relationship with firm value. These results do not support or contradict either Agency theory or stewardship theory. Results on the impact of the adoption of a Corporate Governance law in firm value are mixed. Results for Colombia contradict previous literature by reporting a positive relationship between Corporate Governance laws and firm results while results from Mexico support previous research by reporting no relationship between these variables. This research is valuable for regulators and policy makers in their quest to assess the impact of the adoption of Corporate Governance laws in emerging markets. . Since effective Corporate Governance is important in easier access to financing it is important for shareholders to know which Corporate Governance mechanisms are positively related to firm value. Similarly, it is also important for investors (both foreign and local) in assessing the risk for equity investments in Colombia and Mexico.Item Unknown Country-specific equity market characteristics and foreign equity portfolio allocation(Elsevier Science B.V., Amsterdam., 2012-03-01T00:00:00Z) Thapa, Chandra; Poshakwale, Sunil S.Do country-specific equity market characteristics explain variations in foreign equity portfolio allocation? We study this question using comprehensive foreign equity portfolio holdings data and different measures of country-specific equity market factors for 36 host countries. Employing panel data econometric estimations, our investigation shows that foreign investors prefer to invest more in larger and highly visible developed markets which are more liquid, exhibit a higher degree of market efficiency and have lower trading costs. The findings imply that by improving the preconditions necessary for well- functioning capital markets, policymakers should be able to attract higher levels of foreign equity portfolio investments.Item Open Access Determinants of asymmetric return comovements of gold and other financial assets(Elsevier, 2016-08-18) Poshakwale, Sunil S.; Mandal, AnandadeepUsing conditional time-varying copula models, we characterize the dependence structure of return comovements of gold and other financial assets (stocks, bonds, real estate and oil) during economic expansion and contraction regimes. We also investigate which key macroeconomic and non-macroeconomic variables significantly impact the asset return comovements using a two stage Markov Switching Stochastic Volatility (MSSV) framework. Our results show that the non-macro variables have significant influence on the return comovements. We find that gold is an inappropriate hedge against interest rate changes for real-estate and oil-based portfolios, while for bond portfolios, gold offers a good hedge against inflation uncertainty. We also provide evidence that the “flight to safety” phenomenon is due to the implied volatility of the stock market, rather than the observed stock market uncertainty. Finally, we forecast the asset return comovements and examine their economic significance. We show that a dynamic MSSV model which includes the macroeconomic and non-macroeconomic variables yields superior forecast of future asset return comovements when compared with a multivariate conditional covariance model.Item Open Access The determinants of UK Equity Risk Premium(Cranfield University, 2016-10) Chandorkar, Pankaj Avinash; Poshakwale, Sunil S.Equity Risk Premium (ERP) is the cornerstone in Financial Economics. It is a basic requirement in stock valuation, evaluation of portfolio performance and asset allocation. For the last decades, several studies have attempted to investigate the relationship between macroeconomic drivers of ERP. In this work, I empirically investigate the macroeconomic determinants of UK ERP. For this I parsimoniously cover a large body of literature stemming from ERP puzzle. I motivate the empirical investigation based on three mutually exclusive theoretical lenses. The thesis is organised in the journal paper format. In the first paper I review the literature on ERP over the past twenty-eight years. In particular, the aim of the paper is three fold. First, to review the methods and techniques, proposed by the literature to estimate ERP. Second, to review the literature that attempts to resolve the ERP puzzle, first coined by Mehra and Prescott (1985), by exploring five different types of modifications to the standard utility framework. And third, to review the literature that investigates and develops relationship between ERP and various macroeconomic and market factors in domestic and international context. I find that ERP puzzle is still a puzzle, within the universe of standard power utility framework and Consumption Capital Asset Pricing Model, a conclusion which is in line with Kocherlakota (1996) and Mehra (2003). In the second paper, I investigate the impact of structural monetary policy shocks on ex-post ERP. More specifically, the aim of this paper is to investigate the whether the response of UK ERP is different to the structural monetary policy shocks, before and after the implementation of Quantitative Easing in the UK. I find that monetary policy shocks negatively affect the ERP at aggregate level. However, at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of Quantitative Easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the Bank of England’s monetary policy before and after the monetary stimulus. In the third paper I examine the impact of aggregate and disaggregate consumption shocks on the ex-post ERP of various FTSE indices and the 25 Fama-French style value-weighted portfolios, constructed on the basis of size and book-to-market characteristics. I extract consumption shocks using Structural Vector Autoregression (SVAR) and investigate its time-series and cross-sectional implications for ERP in the UK. These structural consumption shocks represent deviation of agent’s actual consumption path from its theoretically expected path. Aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, when the actual consumption is less than expected, the ERP rises. Durable and Semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks. In the fourth and final paper I investigate the impact of short and long term market implied volatility on the UK ERP. I also examine the pricing implications of innovations to short and long term implied market volatility in the cross-section of stocks returns. I find that both the short and the long term implied volatility have significant negative impact on the aggregate ERP, while at sectoral level the impact is heterogeneous. I find both short and long term volatility is priced negatively indicating that (i) investors care both short and long term market implied volatility (ii) investors are ready to pay for insurance against these risks.Item Open Access Determinants of worldwide foreign equity portfolio holdings and impact of foreign equity porfolio flows on global financial linkages of emerging markets(Cranfield University, 2010-07) Thapa, Chandra; Poshakwale, Sunil S.This thesis comprises of four empirical studies. The first three empirical studies identify and investigate the role of different factors explaining the cross sectional and temporal variation of foreign equity portfolio holdings for thirty-six developed and developing host countries. The fourth empirical study demonstrates the impact of foreign equity flows on global financial linkages of four Asian emerging markets. Our first three empirical studies use foreign equity portfolio holding data on 36 host countries and employ different panel data models. Our survey of the literature shows that only few studies (two to the best of our knowledge) have modelled the bilateral cross-country foreign equity portfolio holdings on a global basis. Further, unlike previous studies, which use cross-section models, we test all our hypotheses using relatively more efficient random effect and more robust fixed effect panel data models. The first empirical study examines three hypotheses demonstrating the association between three different components of transaction costs (commission, fees and market impact) and foreign equity portfolio allocation (FEPA). To the best of our knowledge, we are first to comprehensively test the role of each of the components individually and collectively in modelling FEPA. Addressing several robustness issues, we show significant and robust effect of transaction costs with clear evidence that foreign investors tend to underweight countries with higher transaction costs. In our second empirical study we test five hypotheses investigating the role of country specific equity market characteristics (CSEMC) in explaining FEPA. We use five different variables as proxy of CSEMC, such as stock market development/size, market liquidity, emerging market dummy, equity return volatility and exchange rate volatility. We are first to use the later two volatility measures in modelling FEPA. Consistent with theory, the results show that all the CSEMC factors tend to have strong and statistically significant effect on foreign equity portfolio allocation decisions. Our third empirical study investigates the relationship between investor protection and FEPA. The existing findings on the role of investor protection are highly controversial with divided views and contrasting conclusions. By including three different measures, we demonstrate that investor protection right, particularly the one specific to foreign investments, is also an important feature influencing allocation decisions. Finally, in our fourth empirical study we use daily foreign equity flow data for four Asian emerging markets. Application of co-integration and vector error correction (VEC) models provide strong indication that the increase in foreign equity flows is driving the global financial linkages of the Asian emerging markets. Using different variants of VEC model, our investigation also demonstrates that foreign investors in the selected Asian emerging markets engage in momentum trading strategy and flows have significant effect on the local equity market (price pressure hypothesis). Overall, our study concludes that stock market development features are the most important inputs in the worldwide foreign equity portfolio allocation decision. Furthermore, there is an indication that the growing foreign equity portfolio flows are, in part, responsible for the increasing global financial linkages of the Asian emerging markets.Item Open Access Do investors gain from forecasting the asymmetric return co‐movements of financial and real assets?(Wiley, 2020-08-10) Mandal, Anandadeep; Poshakwale, Sunil S.; Power, Gabriel J.Recent research on asset allocation emphasizes the importance of considering non‐traditional asset classes such as commodities and real estate—the former for their diversification properties, and the latter due to its importance in the average investor's portfolio. However, modelling and forecasting asset return co‐movements is challenging because the dependence structure is dynamic, regime‐specific, and non‐elliptical. Moreover, little is known about the economic source of this time‐varying dependence or how to use this information to improve investor portfolios. We use a flexible framework to assess the economic value to investors of incorporating better forecasting information about return co‐movements between equities, bonds, commodities, and real estate. The dependence structure is allowed to be dynamic and non‐elliptical, while the state variables follow Markov‐switching stochastic volatility processes. We find that the predictability of return co‐movements is significantly improved by incorporating macro and non‐macroeconomic variables, in particular inflation uncertainty and bond illiquidity. The economic value added to investors is significant across levels of risk aversion, and the model outperforms traditional multivariate GARCH frameworks.Item Open Access An empirical investigation of the determinants of asset return comovements(Cranfield University, 2015-10) Mandal, Anandadeep; Poshakwale, Sunil S.Understanding financial asset return correlation is a key facet in asset allocation and investor’s portfolio optimization strategy. For the last decades, several studies have investigated this relationship between stock and bond returns. But, fewer studies have dealt with multi-asset return dynamics. While initial literature attempted to understand the fundamental pattern of comovements, later studies model the economic state variables influencing such time-varying comovements of primarily stock and bond returns. Research widely acknowledges that return distributions of financial assets are non-normal. When the joint distributions of the asset returns follow a non-elliptical structure, linear correlation fails to provide sufficient information of their dependence structure. In particular two issues arise from this existing empirical evidence. The first is to propose a more reliable alternative density specification for a higher-dimensional case. The second is to formulate a measure of the variables’ dependence structure which is more instructive than linear correlation. In this work I use a time-varying conditional multivariate elliptical and non-elliptical copula to examine the return comovements of three different asset classes: financial assets, commodities and real estate in the US market. I establish the following stylized facts about asset return comovements. First, the static measures of asset return comovements overestimate the asset return comovements in the economic expansion phase, while underestimating it in the periods of economic contraction. Second, Student t-copulas outperform both elliptical and non-elliptical copula models, thus confirming the ii dominance of Student t-distribution. Third, findings show a significant increase in asset return comovements post August 2007 subprime crisis ... [cont.].Item Open Access Foreign direct investment from developing countries: a systematic review(Cranfield University, 2009-08) Prasad Kodiyat, Tiju; Poshakwale, Sunil S.The privileges of integration with the global economy have led developing countries to embark on a path of liberalisation and globalisation. This resulted in rapid growth of inward and outward foreign direct investment from developing countries. In the last two decades there is an increasing trend of outward FDI from developing countries to both developed and developing countries. This dissertation focuses on exploring the literature on outward FDI from developing countries, and internationalisation process of developing country multinationals which are considered to be carriers to investment across international borders. The study has examined the two main strands of literature on outward FDI from developing countries – determinants of outward FDI and internationalisation process. Findings of the systematic review show that there is a dearth of studies in this area of research. Except a number of studies on China and countries of East and South East Asia, there is very limited evidence on outward FDI from developing countries. There is a set of studies on Africa that examine South-South investment flows. Studies on other major developing countries are either non-existent or lack in comprehensiveness. Some studies resulted in contradictory findings about the determinants of outward FDI. This raises the question of sensitivity of variables across geographical locations and time periods, which has not been researched before. Studies on outward FDI also do not make a clear distinction between South-South and South-North FDI flows. Other aspects like sovereign wealth funds and commodity price boom have been ignored in the literature. It is important to investigate outward FDI flows from the major developing economies because of its sheer scope to contribute to academic literature, its policy implications, and also because of its potential to bring development to some of the most impoverished parts of the world.Item Open Access Foreign Investors and Global Integration of Emerging Indian Equity Market(SAGE Publications, 2010-06) Poshakwale, Sunil S.; Thapa, ChandraThis article examines the influence of foreign investors in explaining short-run dynamics and long-run relationship of the emerging Indian equity market with global equity markets. Using daily return series and equity portfolio investments made by foreign institutional investors, we conclude that the rapid growth in the flow of foreign equity portfolio investments is leading to greater integration of the Indian equity market with global markets. With the increased global integration, the Indian market will become more susceptible to global shocks as has been witnessed by significant losses suffered by investors in the Indian market following the sub-prime crisis.Item Open Access Global power shift(Cranfield University School of Management, 2011-03-01T00:00:00Z) Poshakwale, Sunil S.Item Open Access The impact of aggregate and disaggregate consumption shocks on the Equity Risk Premium in the United Kingdom(Peking University Press, 2019-11-01) Poshakwale, Sunil S.; Chandorkar, PankajWe examine the impact of aggregate and disaggregate consumption shocks on the ex-post Equity Risk Premium (ERP) of FTSE indices and the 25 Fama-French portfolios. Findings suggest that aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, the ERP increases when the actual consumption is less than expected. Finally, durable and semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocksItem Open Access The impact of foreign equity investment flows on global linkages of the Asian emerging equity markets(Taylor & Francis, 2009-11) Poshakwale, Sunil S.; Thapa, ChandraEvidence of the impact of foreign equity investment flows on the global linkages of the Asian emerging equity markets is provided. Findings confirm that there is a general trend towards greater integration and this process appears to be influenced by the increasing volumes of foreign equity portfolio investment flows. The results support the widely-held view that foreign investors are return chasers and their trading behaviour is based on information drawn from recent returns available in the emerging markets. The results also confirm the price-pressure hypothesis which suggests that foreign equity investors are mainly responsible for the increases in the stock market valuations in the Asian emerging markets. In view of the findings, the Asian emerging markets may become more vulnerable to the changes in foreign investment flows and turn more volatile in future.Item Open Access The impact of foreign equity investment flows on integration of Asian emerging equity markets(Cranfield University School of Management, 2009-01) Poshakwale, Sunil S.; Thapa, ChandraThe paper investigates the impact of foreign equity investment flows on the integration process of emerging markets with the global markets. Daily net foreign equity investment flow and return data for the four Asian emerging markets of India, Korea, Taiwan, and Thailand for 2001-2007 is used in examining the long and short-run relationship with the global markets. The findings show that despite the instability of the correlation structure, there is a general trend towards greater integration. The cointegration analysis results suggest that the four Asian emerging markets are getting integrated with the global markets and the integration process is driven by the activities of the foreign investors. Findings confirm that the global markets have significant causal impact on returns of all four emerging markets and the foreign equity investment flows play a significant role in correcting the short-term deviations in the convergence process. Whilst the results are consistent with previous research, we find stronger evidence for the positive feedback hypothesis for all four markets. The results support the widely held view that foreign investors are high return chasers and extract information from recent returns. Our results also confirm the price pressure hypothesis which suggests that foreign equity investors are mainly responsible for the increase in the stock market valuations in the four Asian emerging markets. If this were to be true, the emerging markets may become increasingly vulnerable to the shocks in the volume of foreign equity investment flows and turn more volatile in future.Item Open Access The impact of monetary policy shocks on the Equity Risk Premium before and after the quantitative easing in the United Kingdom(2016-12-29) Poshakwale, Sunil S.; Chandorkar, Pankaj AvinashThe authors investigate the impact of structural monetary policy shocks on ex-post equity risk premium (ERP) of aggregate and sectoral FTSE indices and 25 Fama-French style value-weighted portfolios. They find that monetary policy shocks negatively affect the ERP but at the sectoral level, the magnitude of the response is heterogeneous. Further, monetary policy shocks have a significant negative (positive) impact on the ERP before (after) the implementation of quantitative easing (QE). The empirical evidence provided in the paper sheds light on the equity market’s asymmetric response to the BoE’s policy before and after the monetary stimulus.Item Open Access The impact of regulations on compliance costs, risk-taking, and the reporting quality of the EU banks(Elsevier, 2019-12-14) Poshakwale, Sunil S.; Aghanya, Daniel; Agarwal, VineetThe paper examines how the Statutory Audit and Corporate Reporting Directives (SACORD) affect the compliance costs, risk taking and quality of financial reporting of the EU banks. Using a natural experiment, we find that post SACORD, both compliance costs and risk taking increase significantly. However, the implementation of additional regulations seems to be effective in terms of improved quality of financial reporting. When we analyse the impact by size, we find that smaller banks face disproportionately higher increase in compliance costs while larger banks seem to engage in greater risk taking.Item Open Access The impact of statutory audit and corporate reporting directives on compliance costs, risk-taking and reporting quality of the EU banks(European Financial Management Association, 2017-05-01) Aghanya, Daniel; Poshakwale, Sunil S.; Agarwal, VineetThe paper examines the effects of recently introduced Statutory Audit and Corporate Reporting Directives (SACORD) on compliance costs and risk taking of the EU banks. Using data of 80 EU banks and 71 non-EU banks for the period 2004 to 2013, we estimate the effects of SACORD regulation compliance costs, risk taking and quality of reporting. Our results show that the economic effects of SACORD on audit fees are approximately 19 to 33 percent higher relative to the non-EU banks. We also find robust evidence of significant increase in in total compliance costs. The findings are consistent with those reported in the previous literature mainly for the US banks that regulation increases compliance costs. Further, we find that post SACORD, there is a significant increase in risk-taking and a decline in reporting quality. Findings suggest that the SACORD regulation does not appear to have the desired effects of constraining risk-taking by banks.Item Open Access Implied volatility and the cross section of stock returns in the UK(Elsevier, 2019-01-14) Poshakwale, Sunil S.; Chandorkar, Pankaj Avinash; Agarwal, VineetThe paper examines the relationship and the cross-sectional asset pricing implications of risk arising from the innovations in the short and the long-term implied market volatility on excess returns of the FTSE100 and the FTSE250 indices and the 25 value-weighted Fama-French style portfolios in the UK. Findings suggest that after controlling for valuation, macroeconomic, leading economic and business cycle indicators, returns exhibit a strong negative relationship with the innovations in both the short and the long-term implied market volatility. The cross-sectional regression provides new evidence that changes in both short and long-term implied market volatility are significant asset pricing factors with negative prices of risk, which suggests that (i) investors care about ex-ante volatility and (ii) they are willing to pay for insurance for future uncertainty.Item Open Access Integration of emerging equity markets. A systematic review(Cranfield University, 2007-08) Thapa, Chandra; Poshakwale, Sunil S.Emerging equity markets have attracted foreign investor by their higher returns and prospect of superior risk diversification benefits. In light of increasing flow of equity portfolio investments into these economies and their subsequent integration with equity markets of developed world, studies have not only shown concern over the reduction in the long term risk diversification benefits, but also there may be less of increase in the original price of securities. Local economy initiates formal financial liberalisation measures to integrate with world capital markets. However, removal of regulatory restrictions may not attract foreign investments in the presence of other indirect barriers and emerging markets specific risks. Also, the process of financial liberalisation is time varying and not one off event. This creates difficulty in pin pointing the exact date of liberalisation. These complexities cause difficulties in the development of dynamic models for pricing securities in emerging markets and measuring the impact of integration. However, with the removal of direct and indirect barriers to foreign investments, these markets are showing greater integration with world markets. With increasing integration emerging markets are becoming more susceptible to global risk factors. Higher degree of integration should reduce cost of equity capital (expected return) and increase the correlation of returns with developed markets. However, empirical works report the reduction in cost of capital to be lower than predicted by asset pricing models. It is also challenging to measure the degree of market integration because of the constant structural changes observed in emerging markets. Countries have even been found to exhibit segmentation over time. Hence, in the context of asset pricing models the findings on the degree of integration are inconclusive and conflicting.