Testing for stock market integration in a developing economy: Colombia

This article examines the linkage between two parallel stock exchanges trading the same shares in Colombia, namely the Bogot Stock Exchange and the Medelln Stock Exchange. We provide empirical evidence to support the hypothesis that these two markets can be best described as fully integrated over a period of almost four decades, which is consistent with the view that arbitrage opportunities are only possible in the short but not in the long-run. In addition, we find evidence that the location of a company's headquarters appears to matter in stock price formation.