What does it mean for an equity market to be integrated or segmented from the world capital market?
What will be an ideal response?
Markets are integrated when assets of identical risk command the same expected return, irrespective of their domicile. Hence, in an integrated equity market, stocks are priced using global discount rates. In a segmented market, discount rates are country–specific. Segmentation usually arises through governmental interference with free capital markets. For example, if foreign investors are taxed or otherwise prohibited from holding the equities of a country, then that country's assets are not part of the world market portfolio, and that country is said to be segmented from international capital markets. It is also conceivable that other factors (such as poor corporate governance or illiquidity) keep foreigners from investing in an equity market, causing it to be effectively segmented.
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Indicate whether the statement is true or false.
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Indicate whether the statement is true or false.