Working Paper: NBER ID: w14802
Authors: Geert Bekaert; Campbell R. Harvey; Christian Lundblad; Stephan Siegel
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.
Keywords: equity market segmentation; financial globalization; political risk; stock market development; corporate credit spread
JEL Codes: F00; F15; F21; F3; F43; F55; G1; G15; P45; P48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial openness (F30) | Market segmentation (M31) |
| Political stability (P16) | Market segmentation (M31) |
| Stock market development (G10) | Market segmentation (M31) |
| US corporate credit spread (G39) | Market segmentation (M31) |