A Test of International Equity Market Integration Using Evidence from Cross-Border Mergers
London Business School Institute of Finance Paper No. 433
38 Pages Posted: 6 Apr 2005
Date Written: April 2005
We examine the changes in betas resulting from international mergers. We find that the beta with respect to the acquirer's home market rises and that with respect to the target's home market falls. This effect is robust with respect to controls for changes in the operations of the companies involved and other robustness tests. It is consistent with the location of primary affecting betas with respect to different international equity markets. Such an effect can occur only if international equity markets are not fully integrated, and the risk that is generated by the stochastic discount factor in each country depends on the location of the primary listing of a company.
Keywords: international mergers, international equity market integration, stochastic discount factors, international betas, segmented markets, primary listing
JEL Classification: F23, F36, G12, G15, G34
Suggested Citation: Suggested Citation