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 rec ent increase in U.S. equity investment in emerging stock markets, the U.S. portfolio remains strongly biased toward domestic equities. Secon d, of the fraction of the U.S. portfolio that is allocated to foreign equity investment, the share invested in emerging stock markets is rou ghly proportional to the share of the emerging stock markets in the gl obal market capitalization value. Third, the volatility of U.S. transa ctions in emerging-market equities is higher than in other foreign equ ities. The normalized volatility of U.S. transactions appears to be fa lling over time, however, and we find no relation between the volume o f U.S. transactions in foreign equity and local turnover rates or vola tility of stock returns.