Regionalism, Political Risk and Capital Market Segmentation in International Asset Pricing

Richard Heaney () and Vince Hooper ()
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Richard Heaney: Australian National University, Postal: Faculty of Economics and Commerce The Australian, National University, Canberra 0200, Australia
Vince Hooper: University of New South Wales, Postal: School of Banking and Finance University of New South Wales, Sydney, Australia

Journal of Economic Integration, 2001, vol. 16, 299-312

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 (search for similar items in EconPapers)
JEL-codes: F15 F36 G12 G15 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0166

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