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Journal of Economic Integration 2001 September;16(3) :299-312.
DOI: https://doi.org/10.11130/jei.2001.16.3.299
Regionalism, Political Risk and Capital Market Segmentation in International Asset Pricing
Richard Heaney and 
Vince Hooper 
Australian National University
University of New South Wales
Copyright ©2001 Journal of Economic Integration
ABSTRACT
This study examines the relationship between financial market segmentation and political risk. Financial economists have attributed market segmentation to factors such as foreign exchange risk, taxes, tariffs and capital controls whereas the influence of political risk has been largely ignored. It is discovered that markets are generally segmented on a regional basis. It is also found that there is a high correlation between political risk and capital market segmentation. However, some countries may appear to be integrated when not because their economies are affected by similar economic factors such as the price of commodities or level of economic development. These findings have profound implications for asset pricing. Multi-index models should be tested that incorporate a regional index, an economic development attribute, commodity factors and a political risk variable in order to price securities more effectively.
Keywords: Regionalism | Political Risk | Segmentation
 
REFERENCE
1. Stulz, R. (1981), "A Model of International Asset Pricing", Journal of Financial Economics, 9(4), 383-406.
2. Von Furstenberg, G. M. (1997), The Banking and Financial Structure in the NAFTA Countries and Chile, Kluwer Academic, Boston; Dordrecht and London, 266.
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