Integration vs. Segmentation in the Canadian Stock Market




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    • Columbia University and University of British Columbia, respectively. We received valuable comments from Michael Adler, Michael Brennan, Maurice Levi and Arthur Warga. Any remaining errors are our own. This work was partially supported by a grant from External Affairs, Ottawa.


This paper examines the issue of integration versus segmentation of the Canadian equity market relative to a global North American market. We compare the international and domestic versions of the CAPM, and find that integration, or the mean-variance efficiency of the global market index, is rejected by the data. Segmentation is the preferred model, based on a maximum likelihood procedure correcting for thin trading. We further divide the sample into securities that are interlisted in Canada and the U.S., and those that are not. Integration is rejected for both groups, which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms.