Market Segmentation and Stock Prices: Evidence from an Emerging Market

Posted: 5 Jul 1998

See all articles by Ian Domowitz

Ian Domowitz

ITG, Inc.; National Bureau of Economic Research (NBER)

Jack D. Glen

International Finance Corporation (IFC)

Ananth Madhavan

BlackRock, Inc.

Date Written: October 1995


Restrictions on equity ownership are common in many countries, especially emerging markets. Yet, despite their importance, many basic empirical questions regarding the effects of such barriers to investment remain unanswered. This paper examines the relation between stock prices and market segmentation induced by ownership restrictions in Mexico. The Mexican market is of particular interest, because firms typically issue multiple classes of equity that differentiate between foreign and domestic traders, and in the case of financial firms, between domestic individuals and institutions. We document significant stock price premia for unrestricted stock, reflecting segmentation induced by ownership restrictions. Using panel data techniques, we analyze the determinants of segmentation across firms and over time. In addition to economy-wide factors, such as foreign perceptions of currency risk, segmentation also reflects the relative scarcity of unrestricted shares. Our results are consistent with theoretical models, in which firms adjust their outstanding shares to discriminate between investor groups with different demand elasticities.

JEL Classification: G15, G32

Suggested Citation

Domowitz, Ian H. and Glen, Jack Dean and Madhavan, Ananth, Market Segmentation and Stock Prices: Evidence from an Emerging Market (October 1995). Available at SSRN:

Ian H. Domowitz (Contact Author)

ITG, Inc. ( email )

380 Madison Avenue, 4th Floor
Electronic Market Initiatives
New York, NY 10017
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jack Dean Glen

International Finance Corporation (IFC) ( email )

2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States
202-473-8641 (Phone)

Ananth Madhavan

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

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