In a different way, the empirical evidence documented in studies such as Stulz (1981), Errunza and Losq
(1985), and Wheatley (1988) supports the partial segmentation hypothesis in light of the significant effects of legal barriers on asset pricing rules in emerging markets.
, 1976, "The Demand for Risky Assets under Uncertain Inflation," Journal of Finance 31, 1287-1297.
Errunza and Losq
(1985) refer to this structure as mild segmentation and provide theoretical predictions regarding pricing outcomes, including a "super" risk premium for assets with trading restrictions.
stock markets are partially segmented; these results are consistent with Errunza and Losq
(1985) model of mild segmentation.
, "Advantages and Limitations of International Portfolio Diversification," in M.
Consistent with this idea, prior studies report evidence that suggests an economy can remain segmented even when foreigners have relatively free access to its capital markets (see, for example, Errunza and Losq
1989; Bekaert and Harvey 1995).
(1985) International Asset Pricing under Mild Segmentation: Theory and Test.
Errunza and Losq
(1987) suggested that MNCs not avoid politically unstable regions because investments in these markets may provide returns that outweigh the risks.
International asset pricing models (Alexander, Eun and Janakirmanan, 1986; Errunza and Losq
, 1985) demonstrate that stock prices should increase and the required rate of return of a stock should decline when moving from segmented to integrated markets.
This two-factor formulation is consistent with current asset pricing theory, including the explanatory model for real return that Elton, Gruber, and Rentzler (1983) use to develop an Arbitrage Pricing Theory (APT) model that considers uncertain inflation, and the real versions of the Capital Asset Pricing Model (CAPM) derived by Chen and Boness (1975) and Friend, Landskroner, and Losq
The four runners up were Rae Hicks, Juliette Losq
, Mandy Payne and Alessandro Raho, who all received PS2,500.