Domowitz is from Northwestern University, Glen is from International Finance Corporation, and Madhavan is from the University of Southern California. We thank Margaret Forster, Phillipe Jorion, Kevin Murphy, Aris Protopapadakis, Mark Weinstein, and seminar participants at the University of Arizona, University of British Columbia, Carnegie Mellon University, Cornell University, New York University, the University of Southern California, Washington University, the International Monetary Fund, the 1996 Georgetown University conference on emerging market structures, the 1996 International Finance Conference (Atlanta), the 1996 European Finance Association Meetings (Oslo), and the 1997 American Finance Association Meetings (New Orleans) for their helpful comments. Expert research assistance was provided by Mark Coppejans. Funding from the World Bank is gratefully acknowledged. Any errors are entirely our own. The comments and opinions contained in this article are those of the authors alone and do not necessarily reflect those of the International Finance Corporation or the World Bank.
Market Segmentation and Stock Prices: Evidence from an Emerging Market
Article first published online: 18 APR 2012
1997 The American Finance Association
The Journal of Finance
Volume 52, Issue 3, pages 1059–1085, July 1997
How to Cite
DOMOWITZ, I., GLEN, J. and MADHAVAN, A. (1997), Market Segmentation and Stock Prices: Evidence from an Emerging Market. The Journal of Finance, 52: 1059–1085. doi: 10.1111/j.1540-6261.1997.tb02725.x
- Issue published online: 18 APR 2012
- Article first published online: 18 APR 2012
We examine the relationship between stock prices and market segmentation induced by ownership restrictions in Mexico. The focus is on multiple classes of equity that differentiate between foreign and domestic traders, and between domestic individuals and institutions. Significant stock price premia are documented for shares not restricted to a particular investor group. We analyze the theoretical and empirical determinants of premia across firms and over time. In addition to economy-wide factors, segmentation reflects the relative scarcity of unrestricted shares. The results provide additional support for Stulz and Wasserfallen's (1995) hypothesis that firms discriminate between investor groups with different demand elasticities.