Barriers to international investing and market segmentation: Evidence from Indian GDR market |
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| Affiliation: | 1. Department of Finance, University of St. Thomas, 2115 Summit Ave. St. Paul, MN 55105, USA;2. Treasury and Investment Management Department, State Bank of India, Madame Cama Road, Mumbai 400 022, India;3. Department of Economics and Finance, Baruch College, CUNY, 17 Lexington Ave., New York, NY 10010, USA;1. UPEC, AP-HP, Henri-Mondor Teaching Hospital, Créteil, France;2. INSERM U955, Créteil, France;3. DHU ATVB, Créteil, France;4. Department of Radiology, AP-HP, Henri-Mondor Teaching Hospital, Créteil, France;5. Department of Cardiovascular Surgery, AP-HP, Henri-Mondor Teaching Hospital, Créteil, France;6. Department of Cardiovascular Medicine, AP-HP, Henri-Mondor Teaching Hospital, Créteil, France;7. Department of Pathology, AP-HP, Henri-Mondor Teaching Hospital, Créteil, France;1. School of Mechanical Engineering, KIIT University, Bhubaneswar-751024, India;2. Department of Mechanical Engineering, GITA, Bhubaneswar-752054, India;1. Department of Cardiac Electrophysiology and Arrhythmology, IRCCS San Raffaele Hospital and Vita-Salute University, Milan, Italy;2. Department of Clinical Cardiology and Primary Cardiomyopathies Unit, IRCCS San Raffaele Hospital and Vita-Salute University, Milan, Italy;3. Department of Cardiovascular Imaging and Cardiac Magnetic Resonance Unit, IRCCS San Raffaele Hospital and Vita-Salute University, Milan, Italy;4. Department of Cardiovascular Pathology, Padua University Hospital, Padua, Italy;1. Institute of Medical Virology, State Key Laboratory of Virology, Wuhan University School of Basic Medical Sciences, Wuhan 430071, China;2. Department of Pathology and Laboratory Medicine, Temple University Lewis Katz School of Medicine, Philadelphia, PA 19140, USA;1. Department of Finance, National University of Kaohsiung, 700 University RD, Kaohsiung, 81148, Taiwan;2. Department of Business Management, National Sun Yat-Sen University, 70 Lien Hai RD, Kaohsiung, 80424, Taiwan;1. Service de cardiologie pédiatrique, centre de référence malformations cardiaques congénitales complexes – M3C, hôpital Necker–Enfants-Malades, Assistance publique–Hôpitaux de Paris, 149, rue de Sèvres, 75015 Paris cedex, France;2. Université Paris Descartes, 75006 Paris, France |
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| Abstract: | In this paper we evaluate market segmentation and its effect on the pricing of cross-listed securities using Indian Global Depositary Receipts (GDRs). When international capital markets are segmented, cross-listed securities may trade at different prices. We test this market segmentation hypothesis using a theoretical and empirical model developed along the lines of Hietala [Hietala, P.T., 1989, Asset pricing in partially segmented markets: Evidence from the Finnish market, Journal of Finance 44, 697–718]) and Foerster and Karolyi [Foerster, S.R., Karolyi, A.G., 1999, The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States, Journal of Finance 54, 981–1013; Foerster, S.R., Karolyi, A.G., 1999, The long-run performance of global equity offerings, Working Paper, Ohio State University]. Our model looks at a specific type of market segmentation in India, where capital flow barriers are such that domestic investors are allowed to invest only in domestic securities, while the foreign investors can invest in dollar-denominated Indian GDRs as well as other foreign securities. Tests on these GDRs indicate that foreign investors, who hold these depositary receipts, estimate the expected returns at a lower level than the domestic investors do. This leads to the GDRs being priced at a premium over the exchange rate adjusted prices of the underlying Indian securities. GDR index returns are affected by both domestic and international factors, while the underlying Indian securities are affected only by domestic variables. |
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