Equity Emerging Markets Liberalization required, increase, decrease, government, one

Iginla2010

I am confused.

Schweser book 3, 211

"Equity prices increase when a government [announces a credible liberalization policy]....."

213

...After liberalization, stock returns decline as, due to reduced capital costs(required returns)


These seem to have one saying stock prices increase and one saying they decrease....

any clarification?

canadiananalyst

isnt it a matter of timing? if i recall, they increase initially (when first announced) and then after all of the capital inflows (many months, or perhaps years of inflows) the expected stock return will decline because risk has decreased (now that they've achieved liberalization)

lower risk = lower return requirement

Valores

Naw man, they mean the required returns decline (think about a DCF model) so therefore prices go up.

lcai

and the locals weep tear of joy on the benefits of liberalization and deregulation

IAmNeil

Soccertom9 Wrote:
-------------------------------------------------------
> When liberalization is announced, the WACC
> declines. As a result the Stock prices increase.
> As the stock prices increase, this lowers the
> expected return.
>
> Don't get confused with increased stock prices =
> increased expected return. Think of increased
> expected return as a function of risk. Like in
> general developed markets have a lower expected
> return because of the lower risk profile.


So apparently the statement

"...After liberalization, stock returns decline as, due to reduced capital costs(required returns)
"


"Stock returns" does not to equal stock prices? I get that required returns fall, which should decrease discount/increase price, but the statement "stock returns' in the same sentence as required returns confuses me...

Windjammer

pimpineasy Wrote:
-------------------------------------------------------
> and the locals weep tear of joy on the benefits of
> liberalization and deregulation


lol