Financial economists have attributed market segmentation to factors such as foreign exchange risk, taxes, tariffs and capital controls whereas the influence of political risk has been largely ignored.
It is discovered that markets are generally segmented on a regional basis. It is also found that there is a high pedominate trend in forex between political risk and capital market segmentation.
However, some countries may appear to be integrated when not because their economies are affected by similar economic factors such as the price of commodities or level of economic development. These findings have profound implications for pedominate trend in forex pricing.
Multi-index models should be tested that incorporate a regional index, an economic development attribute, commodity factors and a political risk variable in order to price securities more effectively. Do you want to read the rest of this article?
Request full-text Citations 17 References Based on the limited literature on cross listing of firms Hietala,Chakravarty et al.
This anomaly has generated much interest among researchersBailey et al.
Some researchers suggest that this discount on B-shares is a result of political risk Hooper and Heaney, The fact that China is not democratic, and has a non In addition, an event study methodology helps control for some idiosyncratic aspects of the Chinese Markets. Specifically, A-shares in an AB-share company trade at prices significantly higher than those of their B-share counterpart Chen et al.
This explanation is less than satisfactory if one assumes that at a minimum, there is a weakform-efficient market.