Hostname: page-component-848d4c4894-75dct Total loading time: 0 Render date: 2024-05-21T13:23:30.627Z Has data issue: false hasContentIssue false
  • English
  • Français

Do Indirect Investment Barriers Contribute to Capital Market Segmentation?

Published online by Cambridge University Press:  06 April 2009

George P. Nishiotis
George P. Nishiotis
Affiliation:
nishioti@ucy.ac.cy, Tulane University, A. B. Freeman School of Business, New Orleans, LA 70118 and University of Cyprus, Department of Public and Business Administration, 75 Kallipoleos Street, P.O. Box 20537, CY 1678 Nicosia, Cyprus.
Get access Rights & Permissions [Opens in a new window]

Abstract

Using a sample of emerging market closed-end funds, I find evidence that indirect investment barriers exert powerful effects on asset pricing differences across countries. I show that not only do indirect investment barriers contribute to international capital market segmentation, but also they can lead to segmentation even in the absence of strong capital inflow restrictions. This result is consistent with Bekaert and Harvey's (1995) conclusion that “other markets appear segmented even though foreigners have relatively free access to their capital markets” (p. 403). The empirical results of this paper provide a rational market segmentation explanation of both premiums and discounts in emerging market closed-end funds, and they are consistent with the deterrent effect of indirect barriers on equity flows to emerging markets found in the capital flow literature.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 3 , September 2004 , pp. 613 - 630
Copyright
Copyright © School of Business Administration, University of Washington 2004

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amihud, Y., and Mendelson, H.. “Asset Pricing and the Bid-Ask Spread.” Journal of Financial Economics, 17 (1986), 223–249.CrossRefGoogle Scholar
Bailey, W., and Jagtiani, J.. “Foreign Ownership Restrictions and Stock Prices in the Thai Capital Market.” Journal of Financial Economics, 36 (1994), 57–87.CrossRefGoogle Scholar
Bekaert, G. “Market Integration and Investment Barriers in Emerging Equity Markets.” The World Bank Economic Review, 9 (1995), 75–107.CrossRefGoogle Scholar
Bekaert, G., and Harvey, C. R.. “Time-Varying World Market Integration.” Journal of Finance, 50 (1995), 403–444.Google Scholar
Bekaert, G., and Harvey, C. R.. “Foreign Speculators and Emerging Equity Markets.” Journal of Finance, 55 (2000), 565–613.CrossRefGoogle Scholar
Bekaert, G., and Urias, M. S.. “Diversification, Integration and Emerging Markets Closed-End Funds.” Journal of Finance, 51 (1996), 835–869.Google Scholar
Bhattacharya, U., and Daouk, H.. “The World Price of Insider Trading.” Working Paper, Indiana Univ., Bloomington (2000).CrossRefGoogle Scholar
Black, F. “International Capital Market Equilibrium with Investment Barriers.” Journal of Financial Economics, 1 (1974), 337–352.CrossRefGoogle Scholar
Bonser-Neal, C.; Brauer, G.; Neal, R.; and Wheatley, S.. ‘International Investment Restrictions and Closed-End Country Fund Prices.” Journal of Finance, 45 (1990), 523–548.Google Scholar
Chen, N.-F.; Kan, R.; and Miller, M. H.. “Are the Discounts on Closed-End Funds a Sentiment Index?” Journal of Finance, 48 (1993), 795–800.Google Scholar
Chuhan, P. “Are Institutional Investors an Important Source of Portfolio Investment in Emerging Markets.” WPS 1243, World Bank, International Economics Department, Washington, D.C.: The World Bank (1992).Google Scholar
Chuhan, P.; Claessens, S.; and Mamingi, N.. “Equity and Bond Flows to Asia and Latin America: The Role of Global and Country Factors.” Mimeo, The World Bank, Washington, D.C. (1993).Google Scholar
Diwan, I.; Errunza, V.; and Senbet, L.. ”Country Funds for Emerging Economies.” In Portfolio Investment in Developing Countries, Claessens, S. and Gooptu, S., eds. Washington, D.C. (1993).Google Scholar
Domowitz, I.; Glen, J.; and Madhavan, A.. ”Market Segmentation and Stock Prices: Evidence from an Emerging Market.” Journal of Finance, 52 (1997), 1059–1085.CrossRefGoogle Scholar
Domowitz, I.; Glen, J.; and Madhavan, A.. “International Cross Listing and Order Flow Migration: Evidence from an Emerging Market.” Journal of Finance, 53 (1998), 2001–2027.CrossRefGoogle Scholar
Erb, B. C.; Harvey, C. R.; and Viskanta, T. E.. “Expected Returns and Volatility in 135 Countries.” Journal of Portfolio Management, 22 (1996), 46–58.CrossRefGoogle Scholar
Errunza, V., and Losq, E.. “International Asset Pricing under Mild Segmentation: Theory and Test.” Journal of Finance, 40 (1985), 105–124.CrossRefGoogle Scholar
Errunza, V., and Losq, E.. “Capital Flow Controls, International Asset Pricing, and Investors' Welfare: A Multi-Country Framework.” Journal of Finance, 44 (1989), 1025–1037.Google Scholar
Errunza, V.; Senbet, L.; and Hogan, K.. ’The Pricing of Country Funds from Emerging Markets: Theory and Evidence.” International Journal of Theoretical and Applied Finance, 1 (1998), 111–143.CrossRefGoogle Scholar
Eun, C. S., and Janakiramanan, S.. “A Model of International Asset Pricing with a Constraint on the Foreign Equity Ownership.” Journal of Finance, 41 (1986), 897–914.CrossRefGoogle Scholar
Hardouvelis, G.; Porta, R. La; and Wizman, T. A. “What Moves the Discount on Country Equity Funds?” In The Internationalization of Equity Markets, Frankel, J., eds. Univ. of Chicago Press (1994).Google Scholar
Harvey, R. C. “Predictable Risk and Returns in Emerging Markets.” Review of Financial Studies, 8 (1995), 773–816.CrossRefGoogle Scholar
Henry, P. B. “Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices.” Journal of Finance, 55 (2000), 529–564.CrossRefGoogle Scholar
Hietala, P. “Asset Pricing in Partially Segmented Markets: Evidence from the Finnish Market.” Journal of Finance, 41 (1989), 603–613.Google Scholar
Hsiao, C.Analysis of Panel Data. New York, NY: Cambridge Univ. Press (1986).Google Scholar
Kendal, M. G., and Gibbons, J. D.. Rank Correlation Methods, 5th ed.Oxford, England: Oxford Univ. Press (1990).Google Scholar
Kim, E. H., and Singal, V.. “Stock Market Openings: Experience of Emerging Economies.” Journal of Business, 73 (2000), 25–66.CrossRefGoogle Scholar
Lee, C. M. C.; Shleifer, A.; and Thaler, R.. “Investor Sentiment and the Closed-End Fund Puzzle.” Journal of Finance, 46 (1991), 75–109.Google Scholar
Newey, K. K., and West, K.. “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703–708.CrossRefGoogle Scholar
Nishiotis, G. P. “Further Evidence on Closed-end Fund Prices and International Capital Flows.” Working Paper, Univ. of Cyprus (2004).Google Scholar
Pontiff, J. “Costly Arbitrage: Evidence from Closed-End Funds.” The Quarterly Journal of Economics, 111 (1996), 1135–1152.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R.. “The Limits of Arbitrage.” Journal of Finance, 52 (1997), 35–55.CrossRefGoogle Scholar
Stulz, R. M. “A Model of International Asset Pricing.” Journal of Financial Economics, 32 (1981a), 847–859.Google Scholar
Stulz, R. M.. “On the Effects of Barriers to International Investment.” Journal of Finance, 36 (1981b), 923–934.CrossRefGoogle Scholar
Swaminathan, B. “Time Varying Expected Small Firm Returns and Closed-End Fund Discounts.” Review of Financial Studies, 9 (1996) 845–887.CrossRefGoogle Scholar