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What Segments Equity Markets?

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  • Bekaert, Geert
  • Harvey, Campbell
  • Lundblad, Christian T
  • Siegel, Stephan

Abstract

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.

Suggested Citation

  • Bekaert, Geert & Harvey, Campbell & Lundblad, Christian T & Siegel, Stephan, 2010. "What Segments Equity Markets?," CEPR Discussion Papers 8142, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8142
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    More about this item

    Keywords

    capital controls; earnings yield; financial development; financial openness; globalization; market integration; political risk; quality of institutions; valuation differentials;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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