A Model of International Asset Pricing with a Constraint on the Foreign Equity Ownership

Abstract

ABSTRACT This paper derives a closed‐form valuation model in a two‐country world in which the domestic investors are constrained to own at most a fraction, δ , of the number of shares outstanding of the foreign firms. When the “ δ constraint” is binding, two different prices rule in the foreign securities market, reflecting the premium offered by the domestic investors over the price under no constraints and the discount demanded by the foreign investors. The premium is shown to be a multiple of the discount, the multiple being the ratio of the aggregate risk aversion of the domestic and foreign investors. Given the aggregate risk‐aversion parameters, the equilibrium premium and discount are determined by the severity of the δ constraint and the “pure” foreign market risk.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 349 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.