What Segments Equity Markets?
We propose a new, valuation-based measure of world equity market segmentation. While we observe decreased levels of segmentation in many developing countries, the level of segmentation is still significant. In contrast to previous research, we characterize the factors that account for variation in market segmentation both through time as well as across countries. While a country's regulation with respect to foreign capital flows is important in determining its level of segmentation, we find that non-regulatory factors are also related to the cross-sectional and time-series variation in the level of segmentation. We identify a country's political risk profile and its stock market development as two additional local segmentation factors as well as the U.S. corporate credit spread as a global segmentation factor.
This paper has benefited from discussions with and comments from Peter Bossaerts, John Campbell, Ines Chaieb, Anusha Chari, Yu-Chin Chen, Josh Coval, John Driffill, Gunter Franke, John Heaton, Andrew Karolyi, Aline Muller, Ruy Ribeiro, Ed Rice, Mark Spiegel, Mehmet Deniz Yavuz, and participants at the 2007 American Economic Association Meetings, 2007 Washington University Asset Pricing Conference, New York University, Harvard University, Cass Business School, McGill University, Queen's University, Rutgers University, University of Kansas, University of Leuven, University of Michigan, University of Minnesota, University of North Carolina at Chapel Hill, 2007 University of Amsterdam Asset Pricing Retreat, 2007 Brazilian Finance Association Meeting, University of Washington, 2007 International Research Conference on Corporate Governance in Emerging Markets, 2007 European Finance Association Meetings, 2007 German Finance Association Meetings, the 2008 Darden Emerging Markets Conference, the 2008 Global Investment Conference, the 9th ECB-CFS Research Network Meeting, NBER's Universities Research Conference "Micro and Macroeconomic Effects of Financial Globalization", and the 2009 American Finance Association Meetings. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2011. "What Segments Equity Markets?," Review of Financial Studies, vol 24(12), pages 3841-3890.