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Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets
Author(s) -
GULTEKIN MUSTAFA N.,
GULTEKIN N. BULENT,
PENATI ALESSANDRO
Publication year - 1989
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.1540-6261.1989.tb02627.x
Subject(s) - capital market , stock exchange , monetary economics , liberalization , capital asset pricing model , economics , business , international economics , financial capital , financial economics , finance , market economy , human capital
The paper focuses on two countries, Japan and the U.S., to test the integration of capital markets. In Japan, the enactment of the Foreign Exchange and Foreign Trade Control Law in December of 1980 amounted to a true regime switch that virtually eliminated capital controls. Using multifactor asset pricing models, we show that the price of risk in the U.S. and Japanese stock markets was different before, but not after, the liberalization. This evidence supports the view that governments are the source of international capital market segmentation.