Geert Bekaert
Stanford University, Stanford, CA 94305
Campbell Harvey
Duke University, Durham, NC 27708
Robin Lumsdaine
Brown University, Providence, RI 02912
ABSTRACT
Measuring the integration of world capital markets is notoriously diffcult. For example, regulatory changes which appear comprehensive may have little impact on the functioning of the capital market if they fail to lead to forein portfolio inflows. In contrast to the usual practice of documenting the timing of regulatory changes, we specify a reduced-form model for a number of financial time-series (for example, equity returns and dividend yields) and search for a common break in the process generating the data. In addition, we estimate a confidence interval for the break. Information on a variety of financial and macroeconomic indicators is employed to interpret the results and to identify the likely date the equity market becomes financially integrated with world capital markets.