There are only a handful of published papers that have exploited data from this pair of
countries to address questions in international finance. In an early study of integration versus
segmentation of securities markets, Jorion and Schwartz (1986) find that the market for Canadian
stocks appears segmented from that of the US, even for Canadian stocks cross-listed in U.S.
markets. Mittoo (1992) finds evidence that the market for Canadian stocks is integrated with
that of the U.S., particularly when a multiple-factor pricing model is applied in later periods
and for cross-listed Canadian stocks. In a study of the exchange rate exposure of stock returns,
Bodnar and Gentry (1993) find substantial exposures of Canadian industry portfolio returns to
Canada’s (USD heavy) trade-weighted exchange rate. Exposures are correlated with industry
characteristics (importer, exporter, non-traded) as predicted.
We will estimate sets of equations that stack approximately 150 years of monthly data for
three series, the U.S. stock index return, Canadian stock index return, rate of change of Canada-U.S.
exchange rate. When combined with other monthly financial and macroeconomic series and dates of
critical legal and regulatory events, we seek to understand the evolution of the degree of segmentation
and the significance of exchange rate exposure in, and across, the two economies.