The purpose of this section is to describe some key characteristics of emerging capital markets and compare them with those of developed markets. Furthermore the several versions of the CAPM are described.
Since the 1980s emerging markets have drawn the interest of investors. Before that time capital flows into the emerging markets were small, as a result of the high market risk and volatility and the lack of financial products and services available for foreign investors (Hoyer-Ellefsen, 2004). A movement of economic liberalization and privatizations throughout these emerging markets lead to an increase of emerging market assets that were available for foreign investors. These emerging market securities were attractive for portfolio investment purposes. Several countries are considered to be in the transition to higher levels of economic development. The countries are considered as ‘emerging markets’ by the International Finance Corporation (IFC) of The World Bank. Among these countries are the countries used in this study; Egypt, Israel, Morocco and Turkey. Some of the key dimensions on which developed markets differ from emerging markets are market size, openness, efficiency, transparency, and liquidity (Hoyer-Ellefsen, 2004). However, emerging markets can differ considerably among themselves.
