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Market frictions and the geographical location of global stock exchanges. Evidence from the S&P Global Index

Andros Gregoriou (University of Brighton, Brighton, UK)
Robert Hudson (University of Hull, Hull, UK)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 22 May 2020

Issue publication date: 2 February 2021




We examine the impact of market frictions in the form of trading costs on investor average holding periods for stocks in the S&P global 1200 index to examine constraints on international portfolio diversification.


We determine whether it is appropriate to pool stocks listed in the USA, Canada, Latin America, Europe, Japan, Asia and Australia into investigations using the same empirical specification. This is very important because the pooled effects may not provide consistent estimates of the average.


We report overwhelming econometric evidence that it is not valid to pool stocks in all the underlying regional equity indices for our investigation, indicating that the effect of frictions varies between markets.

Research limitations/implications

When we pool the stocks within markets, we discover that for companies listed in the USA, Europe, Canada and Australia, market frictions do not significantly influence holding periods and hence are not a barrier to portfolio rebalancing. However, companies listed in Latin America and Asia face market frictions, which are significant in terms of increasing holding periods.

Practical implications

We ascertain that taking into account the properties of stock markets in different geographical locations is vital for understanding the limits on achieving international portfolio diversification.


Unlike prior research, we overcome the problems caused by contemporaneous correlation, endogeneity and joint determination of investor average holding periods and trading costs by employing the Generalized Method of Moments (GMM) system panel estimator. This makes our empirical estimates robust and more reliable than the previous empirical research in this area.



Gregoriou, A. and Hudson, R. (2021), "Market frictions and the geographical location of global stock exchanges. Evidence from the S&P Global Index", Journal of Economic Studies, Vol. 48 No. 2, pp. 354-366.



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