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Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets

Mustafa N. Gultekin, N. Bulent Gultekin and Alessandro Penati
The Journal of Finance
Vol. 44, No. 4 (Sep., 1989), pp. 849-869
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328613
Stable URL: http://www.jstor.org/stable/2328613
Page Count: 21
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Capital Controls and International Capital Market Segmentation: The Evidence from the Japanese and American Stock Markets
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Abstract

The paper focuses on two countries, Japan and the U.S., to test the integration of capital markets. In Japan, the enactment of the Foreign Exchange and Foreign Trade Control Law in December of 1980 amounted to a true regime switch that virtually eliminated capital controls. Using multifactor asset pricing models, we show that the price of risk in the U.S. and Japanese stock markets was different before, but not after, the liberalization. This evidence supports the view that governments are the source of international capital market segmentation.

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