Empirical Evidence of the Existence of Investable Premiums in Emerging Market Investable Stocks


Corresponding author: Siena College, 515 Loudon Rd, Loudonville, NY 12211; Phone: (518) 783 4133; Fax: (518) 783 4165; E-mail: egirard@siena.edu.


This paper shows that portfolios of more investable securities bear a premium when compared to portfolios of less investable stocks, reflecting compensation for local risk factors. The investable premium is overwhelmingly priced across 3,782 companies traded in 29 emerging markets from 1988 to 2006. The investable premium impacts stock returns at least as much as other fundamental premiums such as size, value, momentum, and loads on political, economic, and financial risk factors. The impact of the investable premium on emerging stocks returns has increased in strength, implying that foreign ownership has greater influence on local markets in recent years.