Partially Segmented International Capital Markets and International Capital Budgeting

Posted: 22 Aug 2006

See all articles by Ian A. Cooper

Ian A. Cooper

London Business School

Evi Kaplanis

London Business School

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Abstract

Evidence suggests that interntaional capital markets are neither fully integrated nor completely semented. There is, however, currently no general method available for computing the required return on corporate investments in such capital markets. This paper uses a model of partially integrated international capital markets to derive optimal international capital budgeting rules. We show how capital budgeting rules depend on the level of investor costs to cross-border investment, both directly and also indirectly through the portfolio specialization they induce. We explain how required returns differ for different companies raising capital in such markets and how these costs of capital may be estimated. We also explain how these differences in required return can be consistent with general equilibrium and the effects they have on incentives for foreign direct investment.

Keywords: Market segmentation and integration, international capital budgeting, cost of capital esitmates, global CAPM

JEL Classification: F23, G12, G31

Suggested Citation

Cooper, Ian Anthony and Kaplanis, Evi, Partially Segmented International Capital Markets and International Capital Budgeting. Journal of International Money and Finance, Vol. 19, 2000, Available at SSRN: https://ssrn.com/abstract=925797

Ian Anthony Cooper (Contact Author)

London Business School ( email )

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Evi Kaplanis

London Business School ( email )

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

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