scholarly journals MARKET SEGMENTATION AND NOISE TRADER RISK

2000 ◽  
Vol 03 (01) ◽  
pp. 85-100 ◽  
Author(s):  
VIHANG ERRUNZA ◽  
KED HOGAN ◽  
MAO-WEI HUNG
Keyword(s):  
Market Segmentation ◽  
Capital Market ◽  
Risk Premium ◽  
International Investment ◽  
International Capital ◽  
Fully Integrated ◽  
Asset Pricing Model ◽  
Noise Trader ◽  
Cross Border ◽  
Investment Barriers

A simple asset pricing model is developed to take into account two important characteristics in global investments: market segmentation and noise trader risk. Our results show the removal of international investment barriers and cross-border listings have not led to a fully integrated international capital market. We also show that different degree of investor rationality across borders induces an additional component of risk premium which is related to the "noise spill-over effect".

Do Indirect Investment Barriers Contribute to Capital Market Segmentation?

2004 ◽  
Vol 39 (3) ◽  
pp. 613-630 ◽  
Author(s):  
George P. Nishiotis
Keyword(s):  
Market Segmentation ◽  
Capital Market ◽  
Emerging Market ◽  
Capital Inflow ◽  
Deterrent Effect ◽  
Free Access ◽  
International Capital ◽  
Capital Market Segmentation ◽  
Closed End Funds ◽  
Investment Barriers

AbstractUsing a sample of emerging market closed-end funds, I find evidence that indirect investment barriers exert powerful effects on asset pricing differences across countries. I show that not only do indirect investment barriers contribute to international capital market segmentation, but also they can lead to segmentation even in the absence of strong capital inflow restrictions. This result is consistent with Bekaert and Harvey's (1995) conclusion that “other markets appear segmented even though foreigners have relatively free access to their capital markets” (p. 403). The empirical results of this paper provide a rational market segmentation explanation of both premiums and discounts in emerging market closed-end funds, and they are consistent with the deterrent effect of indirect barriers on equity flows to emerging markets found in the capital flow literature.

Can Cross-Border Funding Frictions Explain Financial Integration Reversals?

2021 ◽  
Author(s):  
Amir Akbari ◽  
Francesca Carrieri ◽  
Aytek Malkhozov
Keyword(s):  
Capital Flows ◽  
Stock Prices ◽  
Market Integration ◽  
Financial Integration ◽  
International Investment ◽  
Global Market ◽  
International Capital ◽  
Portfolio Holdings ◽  
Cross Border ◽  
Investment Barriers

Abstract We show that constraints on using leverage for foreign positions can act as an international investment barrier. Guided by an international CAPM with leverage constraints, we use observed stock prices to measure the variation in the magnitude and the implicit cost of such cross-border funding barriers. Our measure helps explain the dynamics of global market integration and, in particular, its reversals documented in the literature, but not explained by other international investment barriers. We confirm our results using alternative financial integration measures, international capital flows, and institutional portfolio holdings.

How is Liquidity Priced in Global Markets?

2020 ◽  
Author(s):  
Ines Chaieb ◽  
Vihang Errunza ◽  
Hugues Langlois
Keyword(s):  
Market Segmentation ◽  
Risk Premium ◽  
Risk Sharing ◽  
Emerging Market ◽  
World Market ◽  
Expected Returns ◽  
Local Market ◽  
Market Risk Premium ◽  
Asset Pricing Model ◽  
Market Premium

Abstract We develop a new global asset pricing model to study how illiquidity interacts with market segmentation and investability constraints in 42 markets. Noninvestable stocks that can only be held by foreign investors earn higher expected returns compared to freely investable stocks due to limited risk sharing and higher illiquidity. In addition to the world market premium, on average, developed and emerging market noninvestables earn an annual unspanned local market risk premium of $1.17\%$ and $9.04\%$, and a liquidity level premium of $1.06\%$ and $2.39\%$, respectively. These results obtained in a conditional setup are robust to the choice of liquidity measure.

A Single Period Stochastic Model for Maximising Firms Value

GIS Business ◽  
2016 ◽  
Vol 11 (6) ◽  
pp. 39-45
Author(s):  
J. P. Singh
Keyword(s):  
Capital Market ◽  
Firm Value ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Value Maximization ◽  
Risk Return ◽  
Bankruptcy Costs ◽  
Single Period ◽  
Debt Capacity

This article sets up a single period value maximization model for the firm based on stochastic end-of-period cash inflows, stochastic bankruptcy costs and taxes based on income rather than wealth. The risk-return trade-off is captured in the Capital Asset Pricing Model. Thus, the model also assumes a perfect capital market and market equilibrium. The model establishes the existence of a unique optimal financial leverage at which the firm value is maximized, this leverage being less than the maximum debt capacity of the firm.

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