Stocks for the Long Run? Evidence from Emerging Markets

We estimate the myopic (single-period) and intertemporal hedging (long-run) demand for stocks in 20 growth-leading emerging market economies and the US during the 1999-2012 period. We consider two types of emerging market investors: a domestic investor (whose returns are denominated in the local currency) and an international investor who can invest in US and emerging markets stocks (with returns in US dollars). We establish significant short-run and long-run domestic demand for stocks in several emerging market economies. For international investors only the short-run demand for emerging market stocks tends to be significant. Hence, only for domestic investors emerging market stocks are assets for the long run.