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Market integration in developed and emerging markets: Evidence from the CAPM

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  • Bruner, Robert F.
  • Li, Wei
  • Kritzman, Mark
  • Myrgren, Simon
  • Page, Sébastien

Abstract

Beta, as measured by the Capital Asset Pricing Model (CAPM), is widely used for pricing stocks, determining the cost of capital, and gauging the extent to which markets are integrated. The CAPM model assumes that equilibrium conditions prevail. The choice of which market portfolio to use in the regression - the home country or global index - depends on the level of global market integration. We present several new empirical observations on the pricing of stocks and market integration. We provide guidance on how practitioners should calculate beta on securities in various developed and emerging markets.

Suggested Citation

  • Bruner, Robert F. & Li, Wei & Kritzman, Mark & Myrgren, Simon & Page, Sébastien, 2008. "Market integration in developed and emerging markets: Evidence from the CAPM," Emerging Markets Review, Elsevier, vol. 9(2), pages 89-103, June.
  • Handle: RePEc:eee:ememar:v:9:y:2008:i:2:p:89-103
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    1. Gordon M. Bodnar & Bernard Dumas & Richard D. Marston, 2003. "Cross-Border Valuation: The International Cost of Equity Capital," NBER Working Papers 10115, National Bureau of Economic Research, Inc.
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    8. Koedijk, Kees G. & Kool, Clemens J. M. & Schotman, Peter C. & van Dijk, Mathijs A., 2002. "The cost of capital in international financial markets: local or global?," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 905-929, November.
    9. Robert S. Harris & Felicia C. Marston & Dev R. Mishra & Thomas J. O’Brien, 2003. "Ex Ante Cost of Equity Estimates of S&P 500 Firms: The Choice Between Global and Domestic CAPM," Financial Management, Financial Management Association, vol. 32(3), Fall.
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    Cited by:

    1. Assefa, Tibebe A. & Esqueda, Omar A. & Mollick, André Varella, 2017. "Stock returns and interest rates around the World: A panel data approach," Journal of Economics and Business, Elsevier, vol. 89(C), pages 20-35.
    2. Chan, Kam Fong & Powell, John G. & Treepongkaruna, Sirimon, 2014. "Currency jumps and crises: Do developed and emerging market currencies jump together?," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 132-157.
    3. de los Rios, Antonio Diez, 2009. "Exchange rate regimes, globalisation, and the cost of capital in emerging markets," Emerging Markets Review, Elsevier, vol. 10(4), pages 311-330, December.
    4. Nordine Abidi & Burcu Hacibedel & Mwanza Nkusu, 2016. "Changing Times for Frontier Markets; A Perspective from Portfolio Investment Flows and Financial Integration," IMF Working Papers 16/177, International Monetary Fund.
    5. Dewandaru, Ginanjar & Rizvi, Syed Aun R. & Bacha, Obiyathulla I. & Masih, Mansur, 2014. "What factors explain stock market retardation in Islamic Countries," Emerging Markets Review, Elsevier, vol. 19(C), pages 106-127.
    6. repec:eee:quaeco:v:65:y:2017:i:c:p:88-96 is not listed on IDEAS
    7. Kiani, Khurshid M., 2011. "Relationship between portfolio diversification and value at risk: Empirical evidence," Emerging Markets Review, Elsevier, vol. 12(4), pages 443-459.
    8. Rizvi, Syed Aun R. & Arshad, Shaista, 2017. "Analysis of the efficiency–integration nexus of Japanese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 470(C), pages 296-308.
    9. Durand, Robert B. & Lan, Yihui & Ng, Andrew, 2011. "Conditional beta: Evidence from Asian emerging markets," Global Finance Journal, Elsevier, vol. 22(2), pages 130-153.
    10. Frijns, Bart & Tourani-Rad, Alireza & Indriawan, Ivan, 2012. "Political crises and the stock market integration of emerging markets," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 644-653.
    11. Yury Dranev & Sofya Fomkina, 2013. "An asymmetric approach to the cost of equity estimation: empirical evidence from Russia," HSE Working papers WP BRP 12/FE/2013, National Research University Higher School of Economics.
    12. Arouri Mohamed el hédi & Jamel Jouini, 2009. "Analysis of structural breaks in the stock market integration of mexico into world," Economics Bulletin, AccessEcon, vol. 29(2), pages 1380-1392.
    13. Yamani, Ehab A. & Swanson, Peggy E., 2014. "Financial crises and the global value premium: Revisiting Fama and French," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 115-136.

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