What Segments Equity Markets?
National Bank of Poland Working Paper No. 76
61 Pages Posted: 27 Mar 2008 Last revised: 19 Sep 2012
Date Written: February 1, 2011
We propose a new, valuation-based measure of world equity market segmentation. While we observe decreased levels of segmentation in many countries, the level of segmentation remains significant in emerging markets. We characterize the factors that account for variation in market segmentation both through time as well as across countries. Both a country's regulation with respect to foreign capital flows and certain non-regulatory factors are important. In particular, 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.
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