Reply to is students discussion: In light of the Enron, Worldcom, option back da
ID: 2743640 • Letter: R
Question
Reply to is students discussion:
In light of the Enron, Worldcom, option back dating, government bailouts/nationalizations and Madoff scandals, do you think U.S. equity markets are cleaner and more reliable than stock markets in the rest of the world? I think that the U.S. equity markets are pretty clean and reliable compared to the rest of the world’s stock markets. According to Little (n.d.), the United States has a complex system that regulates the securities industry in order to protect individual investors. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are two examples of regulatory bodies. They are not fool-proof, but it is more than some of the other countries have. According to Gibley (2012), some of the potential risks of investing internationally is the political and regulatory risk and the information risk. “Foreign governments can be less stable and they can have restrictions on how freely businesses operate as well as their ability to earn profits.” Also, their accounting standards may differ. Ultimately, I think that the U.S. and foreign markets each hold their varying levels of risk, and there is always room for corruption and scandals. There are many benefits that come with investing domestically as well as internationally. It is just important to take action to mitigate as many risks as possible, have a diverse portfolio, and use good common sense in conjunction with being an informed investor.
Explanation / Answer
Yes, I believe US equity market are more relaible and cleaner than other stock markets because of the existence of strong financial disclosure practices followed by the US companies through the use of US GAAP standards which are much tougher and require more disclosures and offers investors with more information as compared to other countries such as China and India (where the companies has very weak financial disclosures). Even US has much tougher punsihments for the breach of rules . There are such bad events in every stock market, but in light of more financial discloures and strong hold of securities exchange commission , I would say US is much better