Segmentation across International Equity, Bond, and Foreign Exchange Markets

Cathy Ning and Stephen Sapp ()
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Stephen Sapp: Ivey School of Business, University of Western Ontario, London, Ontario, Canada

No 10, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: In this paper, we examine the integration of international financial markets. The integration of financial markets across countries and across asset classes is assumed to hold in most empirical studies, but has only been tested for certain countries and certain asset classes. We test for the integration of international equity, bond and foreign exchange markets. Our results indicate that the three classes of assets are segmented. Investigating potential explanations for this segmentation, we find that there are differing degrees of segmentation across these markets and that this is related to the asset returns from each class being explained by different sets of economic risk factors. In pair-wise tests we find that the bond-equity and bond-foreign exchange markets appear to be more segmented than the equity-foreign exchange market.

Keywords: Market integration; GMM; Stochastic discount factor models; Hansen and Jagannathan distance (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-11
New Economics Papers: this item is included in nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp010

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