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Integration vs. Segmentation in the Canadian Stock Market
Author(s) -
JORION PHILIPPE,
SCHWARTZ EDUARDO
Publication year - 1986
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1986.tb04521.x
Subject(s) - market segmentation , segmentation , equity (law) , market integration , sample (material) , financial economics , stock market , nationality , index (typography) , econometrics , economics , capital asset pricing model , business , political science , geography , artificial intelligence , computer science , microeconomics , immigration , law , world wide web , chemistry , context (archaeology) , archaeology , chromatography
This paper examines the issue of integration versus segmentation of the Canadian equity market relative to a global North American market. We compare the international and domestic versions of the CAPM, and find that integration, or the mean‐variance efficiency of the global market index, is rejected by the data. Segmentation is the preferred model, based on a maximum likelihood procedure correcting for thin trading. We further divide the sample into securities that are interlisted in Canada and the U.S., and those that are not. Integration is rejected for both groups, which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms.