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Do Indirect Investment Barriers Contribute to Capital Market Segmentation?

Published online by Cambridge University Press:  06 April 2009

George P. Nishiotis
George P. Nishiotis
Affiliation:
[email protected], Tulane University, A. B. Freeman School of Business, New Orleans, LA 70118 and University of Cyprus, Department of Public and Business Administration, 75 Kallipoleos Street, P.O. Box 20537, CY 1678 Nicosia, Cyprus.
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Abstract

Using 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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 3 , September 2004 , pp. 613 - 630
Copyright
Copyright © School of Business Administration, University of Washington 2004

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