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Capital Market Integration and Industrial Structure: The Case of Australia, Canada and the United States

Author

Listed:
  • R. Mittoo, Usha

    (University of Manitoba)

  • W. Faff, Robert

    (Monash University)

Abstract

Using a matched sample design where companies are matched by size and industry from Australian, Canadian and US capital markets, we investigate whether capital market integration varies across industries and by geographical proximity. The tests are conducted in the multi-factor pricing framework over the 1983-1997 period. Our evidence supports two main findings. First, the pricing of Australian stocks is different from that of their Canadian and U.S. counterparts. The Australian stocks are priced in a partially segmented global market whereas the Canadian stocks are priced in a regionally integrated North American stock market. Second, global industry stocks such as oil and mining stocks are priced in a relatively integrated capital market while regional industry stocks such as consumer and capital goods stocks are priced in segmented markets. This evidence suggests that industry and geographical distance may proxy factors that may be relevant in international asset pricing.

Suggested Citation

  • R. Mittoo, Usha & W. Faff, Robert, 2003. "Capital Market Integration and Industrial Structure: The Case of Australia, Canada and the United States," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 18, pages 433-465.
    • Handle: RePEc:ris:integr:0243
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    Citations

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    Cited by:

    1. Ignatius Roni Setyawan & Buddi Wibowo, 2021. "Does Entropy Index Explain the Determinant of Capital Market Integration in ASEAN?," Capital Markets Review, Malaysian Finance Association, vol. 29(1), pages 17-39.
    2. King, Michael R. & Segal, Dan, 2008. "Market segmentation and equity valuation: Comparing Canada and the United States," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(3), pages 245-258, July.
    3. Zhong, Angel & Limkriangkrai, Manapon & Gray, Philip, 2014. "Anomalies, risk adjustment and seasonality: Australian evidence," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 207-218.
    4. Hoang, Khoa & Cannavan, Damien & Gaunt, Clive & Huang, Ronghong, 2019. "Is that factor just lucky? Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    5. Paresh Kumar Narayan & Russell Smyth, 2004. "Modelling the linkages between the Australian and G7 stock markets: common stochastic trends and regime shifts," Applied Financial Economics, Taylor & Francis Journals, vol. 14(14), pages 991-1004.
    6. He, Zhongzhi & Kryzanowski, Lawrence, 2007. "Cost of equity for Canadian and U.S. sectors," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 215-229, August.

    More about this item

    Keywords

    Integration; Segmentation; Industrial structure; Multi-Country study;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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