ENTRY BARRIERS AND PRICE MOVEMENTS BETWEEN MAJOR AND EMERGING STOCK MARKETS

Co-movements between major and emerging market stock prices around the 1987 crash reveal a relationship between foreign entry barriers and s tock price transmission. For most countries, individual market return volatility and price spillovers among markets increase immediately aft er the crash. However, in markets with stiff entry barriers, volatilit y rises but there are no price spillovers; in those cases, the premium on closed-end country fund shares increases. This suggests that large transaction costs associated with international arbitrage provide a b arrier to large price signals. The evidence that several emerging-mark et countries are poorly integrated financially with the industrialized countries has important macroeconomic welfare implications.