Asset Pricing in a Segmented Emerging Market
Journal of Applied Economics, Vol. 3, No. 2, pp. 387-412, November 2000
Posted: 20 Jun 2004
This paper investigates the effect of market segmentation on stock prices and returns in emerging Chinese markets. Under the assumption of infinite investment horizon and representative consumer, I formulate an Intertemporal Capital Asset Pricing Model (ICAPM) with restrictions on share ownership. The model posits that cross-section variations in the average excess returns between domestic A- and foreign B-shares depend on systematic risks as measured by shares' own market betas and betas with respect to the international equity markets. After correcting for errors-in-variable problem, I obtain econometric results consistent with the empirical predictions of ICAPM.
Keywords: Asset pricing, ICAPM, market segmentation, ownership restriction, China
JEL Classification: G12, G15, O16
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