International Asset Pricing under Mild Segmentation: Theory and Test
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- Author(s): VIHANG ERRUNZA, ETIENNE LOSQ
- Published: Apr 30, 2012
- Pages: 105-124
- DOI: 10.1111/j.1540-6261.1985.tb04939.x
This paper conducts a theoretical and empirical investigation of the pricing (and portfolio) implications of investment barriers in the context of international capital markets. The postulated market structure—labelled “mildly segmented”—leads to the existence of “super” risk premiums for a subset of securities and to a breakdown of the standard separation result. The empirical study uses an extended data base including LDC markets and provides tentative support for the mild segmentation hypothesis.