What segments equity markets?

We propose a new, valuation-based measure of world equity market segmentation.While we observe decreased levels of segmentation in many countries, the level of segmentation remains signi cant in emerging markets. We characterize the factors that account for variation in market segmentation both through time as well as across countries. Both a country’s regulation with respect to foreign capital flows and certainnon-regulatory factors are important. In particular, we identify a country’s political risk profile and its stock market development as two additional local segmentation factors as well as the U.S. corporate credit spread as a global segmentation factor.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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