Prior studies have shown that the return on a security (i.e., buy-and-hold return or BHR) can differ from the return to investors (i.e., dollar-weighted return or DWR) if there is a correlation between the security return and the capital that investors commit to the security. In this paper, we compute the DWR for the aggregate corporate sector in 43 countries and examine its cross-country variation, with particular attention to the difference between emerging and developed markets. We find that the DWR is not as widely dispersed across countries as the BHR. Between emerging and developed markets in particular, no difference is found in DWR, although the BHR is unsurprisingly higher in emerging markets than in developed countries. It turns out that the lower DWR in emerging markets relative to their own BHR is related to the greater comovement in firm-level funding activities in those countries. Our results support a version of efficient international capital markets in which capital moves across countries until neither emerging markets nor developed countries offer any better or worse profit opportunity. Our results also suggest that correlated investments across firms are associated with a lower return to investors, or equivalently, a lower cost of funds to corporations.

Keywords: Dollar-weighted return; Corporations; Emerging markets; Comovement

JEL classification: F30; F65; G31; G32