ABSTRACT
The 1980s marked a decade of significant change and transformation in global financial markets. An increase in investor sophistication, advancements in electronics and communication technology, the breakdown of national and international investment barriers, and the development of international investment instruments, such as the American Depository Receipt, have indeed changed the landscape of the global market place. Additionally, improvements in the operations of stock exchanges, the comprehensive revisions in security law, and improved accounting and auditing standards have had far-reaching impacts as well. One of the most striking and far-reaching developments of the last decade was the tremendous growth of portfolio investment in emerging equity markets. And the trend continues. Developing countries in Asia and Latin America have embarked on domestic economic reforms, including liberalizing foreign portfolio investment conditions and privatizing state-owned companies. Developing country equity markets have evolved during this time from virgin territory to an increasingly well-developed arena of global finance. In addition to the facts mentioned above, several others explain this explosive growth: notably the trend toward measuring portfolio managers’ performance against international indexes as well as local benchmarks; the large and increasing amount of funds at the disposal of institutional investors in the United States, Europe, and Japan, presently estimated in excess of US $3 trillion along with a long-term orientation of these investors; and the profitability performance of emerging markets, which has outperformed most developed market benchmarks during the last five years.
