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Regionalism, Political Risk and Capital Market Segmentation in International Asset Pricing

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Author Info

  • Heaney, Richard

    ()
    (Australian National University)

  • Hooper, Vince

    ()
    (University of New South Wales)

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    Abstract

    This study examines the relationship between financial market segmentation and political risk. Financial economists have attributed market segmentation to factors such as foreign exchange risk, taxes, tariffs and capital controls whereas the influence of political risk has been largely ignored. It is discovered that markets are generally segmented on a regional basis. It is also found that there is a high correlation between political risk and capital market segmentation. However, some countries may appear to be integrated when not because their economies are affected by similar economic factors such as the price of commodities or level of economic development. These findings have profound implications for asset pricing. Multi-index models should be tested that incorporate a regional index, an economic development attribute, commodity factors and a political risk variable in order to price securities more effectively.

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    Bibliographic Info

    Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

    Volume (Year): 16 (2001)
    Issue (Month): ()
    Pages: 299-312

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    Handle: RePEc:ris:integr:0166

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    Web page: http://econo.sejong.ac.kr/
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    Related research

    Keywords: Regionalism; Political Risk; Segmentation;

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    Cited by:
    1. Ekaterina Dorodnykh, 2013. "What Drives Stock Exchange Integration?," International Journal of Economic Sciences and Applied Research (IJESAR), Technological Educational Institute (TEI) of Kavala, Greece, vol. 6(2), pages 47-79, September.
    2. Chee Wooi Hooy, 2008. "Does trade regionalism increase stock market segmentation within a trading bloc?," International Economic Journal, Taylor & Francis Journals, vol. 22(1), pages 113-126.

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