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Investment in Developed and Less Developed Countries

Published online by Cambridge University Press:  06 April 2009

Vihang R. Errunza  and
Barr Rosenberg
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Extract

A number of studies have compared the investment risk of various industries and of various individual corporations in developed countries (DCs). The purpose of this paper is to compare investment risk in DCs with less developed countries (LDCs). The variance of returns to investment in common stocks provides a natural measure of investment risk and will be used in this study. Studies in LDCs include work of Levy and Sarnat [12], [13]. Errunza [3], [4], and Lessard [11]. Levy and Sarnat and Errunza found low economy-wide investment risk on an average for LDCs (relative to DCs), with stock indices being used as surrogates for economy-wide risk. These results are not unambiguous, however, because there are probable difficulties due to infrequent trading and averaging in the broad market indices used in the above studies. Hence, we use a sample of the largest corporations that suffer little, if at all, from thin trading and/or averaging.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 17 , Issue 5 , December 1982 , pp. 741 - 762
Copyright
Copyright © School of Business Administration, University of Washington 1982

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