Regionalism, Political Risk and Capital Market Segmentation in International Asset Pricing

14 Pages Posted: 29 Jan 2001

See all articles by Vincent J. Hooper

Vincent J. Hooper

Xiamen University

Richard Heaney

Australian National University

Multiple version iconThere are 2 versions of this paper


This study examines the relationship between financial market segmentation and political risk. Financial economists have attributed market segmentation to factors such as foreign exchange risk, taxes, tariffs and capital controls whereas the influence of political risk has been largely ignored. It is discovered that markets are generally segmented on a regional basis. It is also found that there is a high correlation between political risk and capital market segmentation. However, some countries may appear to be integrated when not because their economies are affected by similar economic factors such as the price of commodities or level of economic development. These findings have profound implications for asset pricing. Multi-index models should be tested that incorporate a regional index, an economic development attribute, commodity factors and a political risk variable in order to price securities more effectively.

Keywords: Cluster Analysis, International Asset Pricing, Regionalism, Emerging Stock Markets, Political Risk

JEL Classification: G15

Suggested Citation

Hooper, Vincent James and Heaney, Richard, Regionalism, Political Risk and Capital Market Segmentation in International Asset Pricing. AFA 2001 New Orleans Meetings. Available at SSRN: or

Richard Heaney

Australian National University ( email )

Canberra, Australian Capital Territory 0200
(+61) 6 2494726 (Phone)
(+61) 6 2495005 (Fax)

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