Market and Regional Segmentation and Risk Premia in the First Era of Financial Globalization


Published: 18Oct2017

Authors: David Chambers, Sergei Sarkissian and Michael J. Schill

Publication: Review of Financial Studies, Forthcoming


We study market segmentation effects using data on U.S. railroads that list their bonds in New York and London between 1873 and 1913. This sample provides a unique setting for such analysis because of the precision offered by bond yields in cost of capital estimation, the geography-specific nature of railroad assets, and ongoing substantial technological change. We document a significant reduction in market segmentation over time. Whilst New York bond yields exceeded those in London in the 1870s, this premium disappeared by the early 1900s. However, the segmentation premium persisted in the more remote regions of the United States.

Read full article: Review of Financial Studies

Desautels 22

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