Asset Pricing in a Segmented Emerging Market

Dongwei Su

Journal of Applied Economics, 2000, vol. 3, issue 2, 387-412

Abstract: This paper investigates the effect of market segmentation on stock prices and returns in emerging Chinese markets. Under the assumption of infinite investment horizon and representative consumer, I formulate an Intertemporal Capital Asset Pricing Model (ICAPM) with restrictions on share ownership. The model posits that cross-section variations in the average excess returns between domestic A -and foreign B- shares depend on systematic risks as measured by shares' own market betas and betas with respect to the international equity markets. After correcting for errors-in-variable problem, I obtain econometric results consistent with the empirical predictions of ICAPM.

Date: 2000
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DOI: 10.1080/15140326.2000.12040555

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