A Joint Test of Market Segmentation and Exchange Risk Factor in International Capital Market

Jongmoo Jay Choi and Murli Rajan
Additional contact information
Jongmoo Jay Choi: Temple University
Murli Rajan: University of Scranton

Journal of International Business Studies, 1997, vol. 28, issue 1, 29-49

Abstract: Market segmentation and exchange risk are two main factors that distinguish international financing and investment decisions from domestic ones. Existing studies of market segmentation have been conducted within a framework in which exchange risk is not explicitly recognized. This paper performs a joint test of market segmentation and exchange risk pricing based on individual stock data from seven major countries, outside of the U.S., for the period January 1981 to December 1989. The theoretical framework used is a multifactor model with domestic and world market factors and an exchange risk factor. The maximum likelihood method is used to estimate risk premia, and factor analysis is used to provide additional evidence on the pricing of risk factors. The results indicate that (a) the factor structure of asset returns is internationally heterogeneous, (b) many national capital markets can be described as partially segmented, rather than the polar cases of complete segmentation or integration, and (c) exchange risk is a significant factor affecting asset returns in addition to the domestic and world market risk factors.© 1997 JIBS. Journal of International Business Studies (1997) 28, 29–49

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.palgrave-journals.com/jibs/journal/v28/n1/pdf/8490092a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/jibs/journal/v28/n1/full/8490092a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jintbs:v:28:y:1997:i:1:p:29-49

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/41267/PS2

Access Statistics for this article

Journal of International Business Studies is currently edited by John Cantwell

More articles in Journal of International Business Studies from Palgrave Macmillan, Academy of International Business
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().