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Authors:

• Kalok CHAN
  Hong Kong University of Science and Technology

• Kee-Hong BAE
  Hong Kong University of Science and Technology

• Angela Ng
  Hong Kong University of Science and Technology

We examine investibility, which is the degree to which foreigners may legally own a security, in emerging markets. There is a positive relationship between return volatility and the investibility of individual stocks, even after controlling for the country, the industry, the firm size, and the turnover. Country investibility, an aggregated measure of investibility across stocks, seems to be a proxy for the level of market integration as it affects the conditional covariances of the country with the world market. The highly investible emerging market portfolio is more volatile and more correlated with the world market relative to the non-investible portfolio.