It is being use to test whether assets are best regarded as being traded in segmented (national) or integrated (international) markets, found some evidence that markets are integrated. It can be state as: E(Rj i) ¼ Rf þ b j wi , where E(Rj i) ¼ expected rate of return on ith security (or portfolio) in country j; Rf ¼the risk-free rate of interest; and E(Rw) ¼ expected rate or return on the world market portfolio; b j wi ¼ ( ri:wsisw)=s2 w or the correlation coefficient between the rate of return on security i in country j and the world market, times the standard deviation of security i, times the standard deviation of the world market, divided by the variance of the world market portfolio. It is also the International system risk of country j.