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

See all articles by Richard A. Brealey

Richard A. Brealey

London Business School

Ian A. Cooper

London Business School

Evi Kaplanis

London Business School

Date Written: April 2005

Abstract

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

Brealey, Richard A. and Cooper, Ian Anthony and Kaplanis, Evi, A Test of International Equity Market Integration Using Evidence from Cross-Border Mergers (April 2005). London Business School Institute of Finance Paper No. 433, Available at SSRN: https://ssrn.com/abstract=700001 or http://dx.doi.org/10.2139/ssrn.700001

Richard A. Brealey

London Business School ( email )

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Ian Anthony Cooper (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 171 262 5050 (Phone)

Evi Kaplanis

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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