FOREIGN OWNERSHIP RESTRICTIONS AND STOCK-PRICES IN THE THAI CAPITAL-MARKET

We study the effects of barriers to capital flows using data from the Stock Exchange of Thailand, which segments local and foreign trading o f securities that have reached foreign ownership limits. Cross-section al differences between local and foreign prices are correlated with pr oxies for the severity of foreign ownership limits, liquidity, and inf ormation availability. Time-series variability in the spread between l ocal and foreign returns is consistent with differences in risk exposu res and expected risk premiums, suggesting effective capital market se gmentation. The results have numerous implications for portfolio and d irect investment activity in developing countries.