A. Official liberalizations

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

opening

Ave

rage

div

iden

d yi

eld

two

year

s af

ter

open

ing

45o

Regression fit

A. Official liberalizations

-0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlation two years before opening

Cor

rela

tion

tw

o ye

ars

afte

r op

enin

g

45o

Regression fit

A. Official liberalizations

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45o

Regression fit

A. Official liberalizations

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before opening

Exc

ess

retu

rns

two

year

s af

ter

open

ing

45o

Regression fit

B. Minimum of official liberalization, ADRand Country Fund introduction dates

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

opening

Ave

rage

div

iden

d yi

eld

two

year

s af

ter

open

ing

45o

Regression fit

B. Minimum of official liberalization, ADRand Country Fund introduction dates

-0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlation two years before opening

Cor

rela

tion

tw

o ye

ars

afte

r op

enin

g

45o

Regression fit

B. Minimum of official liberalization, ADRand Country Fund introduction dates

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45o

Regression fit

B. Minimum of official liberalization, ADRand Country Fund introduction dates

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before opening

Exc

ess

retu

rns

two

year

s af

ter

open

ing

45o

Regression fit

C. Net U.S. Equity Capital Flow Break Points

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

opening

Ave

rage

div

iden

d yi

eld

two

year

s af

ter

open

ing

45o

Regression fit

C. Net U.S. Equity Capital Flow Break Points

-0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlation two years before opening

Cor

rela

tion

tw

o ye

ars

afte

r op

enin

g

45o

Regression fit

C. Net U.S. Equity Capital Flow Break Points

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45o

Regression fit

C. Net U.S. Equity Capital Flow Break Point

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before opening

Exc

ess

retu

rns

two

year

s af

ter

open

ing

45o

Regression fit

Figure 1

The decreasing impact of ADR and Country Fund launchings

0

2

4

6

8

10

12

14

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

=.95

=.50

=.05

Unconditional Pre-Event Five-Year Correlations with World Market Return

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Arg

Bra

Chi

Col

Gre Ind

Ino

Jor

Kor

Mal

Mex

Nig

Pak Phi

Por Tai

Tha

Tur

Ven

Zim

Official Liberalization First Sign LiberalizationNet US Capital Flow Break Point

Figure A1

Simulation Results for ReturnsFor r=8% to r=6% mid-sample change and

autocorrelation of dividend growth=0.3

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1 21 41 61 81 101 121 141 161 181

Figure A1

Simulation Results for ReturnsFor r=8% to r=6% mid-sample change and

autocorrelation of dividend growth=0.1

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1 21 41 61 81 101 121 141 161 181

Figure A2

Simulation Results for Dividend YieldsFor r=8% to r=6% mid-sample change and

autocorrelation of dividend growth=0.1

0.045

0.05

0.055

0.06

0.065

0.07

0.075

0.08

1 21 41 61 81 101 121 141 161 181

Figure A2

Simulation Results for Dividend YieldsFor r=8% to r=6% mid-sample change and

autocorrelation of dividend growth=0.3

0.045

0.05

0.055

0.06

0.065

0.07

0.075

0.08

1 21 41 61 81 101 121 141 161 181

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

opening

Ave

rage

div

iden

d yi

eld

two

year

s af

ter

open

ing

45o

Regression fit

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before opening

Exc

ess

retu

rns

two

year

s af

ter

open

ing

45o

Regression fit

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45o

Regression fit -0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlation two years before opening

Cor

rela

tion

tw

o y

ears

aft

er o

pen

ing

45o

Regression fit

A. Official liberalizations

A. Official liberalizations

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

openingA

vera

ge d

ivid

end

yiel

d tw

o ye

ars

afte

r op

enin

g

45 o

Regression fi t

B. Minimum of official liberalization, ADRand Country Fund introduction dates

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

opening

Ave

rage

div

iden

d yi

eld

two

year

s af

ter

open

ing

45 o

Regression fi t

C. Net U.S. Equity Capital Flow Break Points

0

3

6

9

12

15

0 3 6 9 12 15Average dividend yield two years before

opening

Ave

rage

div

iden

d yi

eld

two

year

s af

ter

open

ing

45 o

Regression fi t

Figure 2

The impact of opening capital markets on dividend yields

A. Official liberalizations

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before openingE

xces

s re

turn

s tw

o ye

ars

afte

r op

enin

g

45 o

Regression fi t

B. Minimum of official liberalization, ADRand Country Fund introduction dates

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before opening

Exc

ess

retu

rns

two

year

s af

ter

open

ing

45 o

Regression fi t

C. Net U.S. Equity Capital Flow Break Point

-0.9

-0.6

-0.3

0

0.3

0.6

0.9

1.2

-0.9 -0.6 -0.3 0 0.3 0.6 0.9 1.2

Excess returns two years before opening

Exc

ess

retu

rns

two

year

s af

ter

open

ing

45 o

Regression fi t

Figure 3

The impact of opening capital markets on excess returns

A. Official liberalizations

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45 o

Regression fi t

B. Minimum of official liberalization, ADRand Country Fund introduction dates

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45 o

Regression fi t

C. Net U.S. Equity Capital Flow Break Points

0

0.25

0.5

0.75

1

1.25

1.5

1.75

0 0.25 0.5 0.75 1 1.25 1.5 1.75

Volatility two years before opening

Vol

atili

ty tw

o ye

ars

afte

r op

enin

g

45 o

Regression fi t

Figure 4

The impact of opening capital markets on volatility

A. Official liberalizations

-0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlat ion two years before opening

Co

rrel

atio

n tw

o y

ears

aft

er o

pen

ing

45 o

Regression fi t

B. Minimum of official liberalization, ADRand Country Fund introduction dates

-0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlat ion two years before opening

Co

rrel

atio

n tw

o y

ears

aft

er o

pen

ing

45 o

Regression fi t

C. Net U.S. Equity Capital Flow Break Points

-0.5

-0.25

0

0.25

0.5

0.75

-0.5 -0.25 0 0.25 0.5 0.75

Correlat ion two years before opening

Co

rrel

atio

n tw

o y

ears

aft

er o

pen

ing

45 o

Regression fi t

Figure 5

The impact of opening capital markets on correlations with world

Economic Impact on Dividend YieldsCountry Moving From 25th Percentile to Median

Official Liberalizations

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.1

Cha

nge

in d

ivid

end

yiel

d

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

Economic Impact on Dividend YieldsCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.1

Cha

nge

in d

ivid

end

yiel

d

NU

MC

CO

NC

R

STD

L2

INF

L

FX

V

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

Economic Impact on Dividend YieldsCountry Moving From 25th Percentile to Median

Capital Flow Break Points

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.1

Cha

nge

in d

ivid

end

yiel

d

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

Economic Impact on Monthly Excess ReturnsCountry Moving From 25th Percentile to Median

Official Liberalizations

-0.025-0.02

-0.015

-0.01

-0.005

0

0.005

0.01

0.015

Cha

nge

in e

xces

s re

turn

s

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

Economic Impact on Monthly Excess ReturnsCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-0.025-0.02

-0.015

-0.01

-0.005

0

0.005

0.01

0.015

Cha

nge

in e

xces

s re

turn

s

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

Economic Impact on Monthly Excess ReturnsCountry Moving From 25th Percentile to Median

Capital Flow Break Points

-0.025-0.02

-0.015

-0.01

-0.005

0

0.005

0.01

0.015

Cha

nge

in e

xces

s re

turn

s

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

Economic Impact on VolatilityCountry Moving From 25th Percentile to Median

Official Liberalizations

-2-1.5

-1-0.5

00.5

11.5

22.5

Cha

nge

in v

olat

ilit

y

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

SUM

-75

Economic Impact on VolatilityCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-2-1.5

-1-0.5

00.5

11.5

22.5

Cha

nge

in v

olat

ilit

y

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

SUM

-75

Economic Impact on VolatilityCountry Moving From 25th Percentile to Median

Capital Flow Break Points

-2-1.5

-1-0.5

00.5

11.5

22.5

Cha

nge

in v

olat

ilit

y

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

SUM

-75

Economic Impact on CorrelationCountry Moving From 25th Percentile to Median

Official Liberalizations

-0.010

0.010.020.030.040.050.060.070.08

Cha

nge

in c

orre

lati

on

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

SUM

-75

Economic Impact on CorrelationCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-0.010

0.010.020.030.040.050.060.070.08

Cha

nge

in c

orre

lati

on

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

SUM

-75

Economic Impact on CorrelationCountry Moving From 25th Percentile to Median

Capital Flow Break Points

-0.010

0.010.020.030.040.050.060.070.08

Cha

nge

in c

orre

lati

on

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

SUM

SUM

-75

Figure A1

Simulation Results for ReturnsFor r=8% to r=6% mid-sample change and

autocorrelation of dividend growth=0.1

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1 21 41 61 81 101 121 141 161 181

Figure A2

Simulation Results for Dividend YieldsFor r=8% to r=6% mid-sample change and

autocorrelation of dividend growth=0.1

0.045

0.05

0.055

0.06

0.065

0.07

0.075

0.08

1 21 41 61 81 101 121 141 161 181

Economic Impact on Dividend YieldsCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.1

Cha

nge

in d

ivid

end

yiel

d

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Monthly Excess ReturnsCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-0.025-0.02

-0.015-0.01

-0.0050

0.0050.01

0.015

Cha

nge

in e

xces

s re

turn

s

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on VolatilityCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-2-1.5

-1-0.5

00.5

11.5

22.5

Cha

nge

in v

olat

ility

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on CorrelationCountry Moving From 25th Percentile to Median

ADR, Country Fund, Official Liberalizations

-0.010

0.010.020.030.040.050.060.070.08

Cha

nge

in c

orre

lati

on

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Dividend Yields

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.1

Cha

nge

in d

ivid

end

yiel

d

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Monthly Excess Returns

-0.025-0.02

-0.015-0.01

-0.0050

0.0050.01

0.0150.02

Cha

nge

in e

xces

s re

turn

s

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Volatility

-2-1.5

-1-0.5

00.5

11.5

22.5

Cha

nge

in v

olat

ility

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Correlation

-0.010

0.010.020.030.040.050.060.070.08

Cha

nge

in c

orre

lati

on

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Beta

-0.020

0.020.040.060.080.1

0.120.14

Cha

nge

in b

eta

NU

MC

CO

NC

R

STD

L2

INFL

FXV

XM

GD

P

CC

R

MC

AP

STD

STA

R

PO

ST-P

RE

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Dividend Yields

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.1

00.1

Cha

nge

in d

ivid

end

yie

ld

NU

MC

CO

NC

R

STD

L2

INF

L

FX

V

XM

GD

P

CC

R

MC

AP

ST

DS

TA

R

PO

ST

-PR

E

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Monthly Excess Returns

-0.025-0.02

-0.015-0.01

-0.0050

0.0050.01

0.015

Cha

nge

in e

xces

s re

turn

s

NU

MC

CO

NC

R

STD

L2

INF

L

FX

V

XM

GD

P

CC

R

MC

AP

ST

DS

TA

R

PO

ST

-PR

E

Fin

.Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Volatility

-2-1.5

-1-0.5

00.5

11.5

22.5

Cha

nge

in v

olat

ilit

y

NU

MC

CO

NC

R

STD

L2

INF

L

FX

V

XM

GD

P

CC

R

MC

AP

ST

DS

TA

R

PO

ST

-PR

E

Fin.

Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Economic Impact on Correlation

-0.010

0.010.020.030.040.050.060.070.08

Cha

nge

in c

orre

latio

n

NU

MC

CO

NC

R

STD

L2

INF

L

FX

V

XM

GD

P

CC

R

MC

AP

ST

DS

TA

R

PO

ST

-PR

E

Fin

.Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al

Country Moving From 25th Percentile to Median ADR, Country Fund, Official Liberalizations

Figure 2

Figure 2 (continued)

Financial Development represents the sum of NUMC, CONCR, STDL2, MCAP and STDSTAR. Macroeconomic development isthe sum of INFL, FXV, XMGDP and CCR. Financial Liberalization is POST-PRE.

Country Moving From 25th Percentile to Median ADR, Country Fund, Official Liberalizations

Economic Impact on Beta

-0.020

0.020.040.060.080.1

0.120.14

Cha

nge

in b

eta

NU

MC

CO

NC

R

STD

L2

INF

L

FX

V

XM

GD

P

CC

R

MC

AP

ST

DS

TA

R

PO

ST

-PR

E

Fin

.Mrt

.Dev

el

Mac

ro D

evel

Lib

eral

izat

ion

Tot

al