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Dating the Integration of World Equity Markets

Geert Bekaert (), Campbell Harvey () and Robin L. Lumsdaine

No 6724, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Measuring the integration of world capital markets is notoriously difficult. For example, regulatory changes which appear comprehensive may have little impact on the functioning of the capital market if they fail to lead to foreign portfolio inflows. In contrast to the usual practice of documenting the timing of regulatory changes, we specify a reduced-form model for a number of financial time-series (for example, equity returns and dividend yields) and search for a common break in the process generating the data. In addition, we estimate a confidence interval for the break. Information on a variety of financial and macroeconomic indicators is employed to interpret the results and to identify the likely date the equity market becomes financially integrated with world capital markets. We find endogenous break dates that are very accurately estimated but do not always correspond closely to dates of official capital market reforms. After the break, stock markets are on average larger and more liquid than before; returns are more volatile and more highly correlated with the world market return, dividend yields are lower and credit ratings improve.

JEL-codes: F3 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-ifn
Date: 1998-09
Note: AP
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Published as Bekaert, Geert, Campbell R. Harvey and Robin L. Lumsdaine. "Dating The Integration Of World Equity Markets," Journal of Financial Economics, 2002, v65(2,Aug), 203-247.

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