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Dating the Integration of World Equity Markets

EFA 2001 Barcelona Meetings

61 Pages Posted: 6 Oct 2001  

Geert Bekaert

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Robin L. Lumsdaine

American University - Department of Finance and Real Estate; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2, 2001

Abstract

Measuring the integration of world capital markets is notoriously difficult. For example, regulatory changes which appear comprehensive may have little impact on the functioning of the capital market if they fail to lead to foreign portfolio inflows. In contrast to the usual practice of documenting the timing of regulatory changes, we specify a reduced-form model for a number of financial time-series (for example, equity returns and dividend yields) and search for a common break in the process generating the data. In addition, we estimate a confidence interval for the break. Information on a variety of financial and macroeconomic indicators is employed to interpret the results and to identify the likely date the equity market becomes financially integrated with world capital markets. We find endogenous break dates that are very accurately estimated but do not always correspond closely to dates of official capital market reforms. After the break, stock markets are on average larger and more liquid than before; returns are more volatile and more highly correlated with the world market return, dividend yields are lower and credit ratings improve.

JEL Classification: F3,G1

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lumsdaine, Robin L., Dating the Integration of World Equity Markets (September 2, 2001). EFA 2001 Barcelona Meetings. Available at SSRN: https://ssrn.com/abstract=275914 or http://dx.doi.org/10.2139/ssrn.275914

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Robin L. Lumsdaine

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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