We study market segmentation effects using data on U.S. railroads that list their bonds in New York and London between 1873 and 1913. This sample provides a unique setting for such analysis because of the precision offered by bond yields in cost of capital estimation, the geography-specific nature of railroad assets, and ongoing substantial technological change. We document a significant
reduction in market segmentation over time. Whilst New York bond yields exceeded those in London in the 1870s, this premium disappeared by the early 1900s. However, the segmentation premium persisted in the more remote regions of the United States.Chambers acknowledges financial support from his Keynes Fellowship, the Newton Centre for Endowment Asset Management and the Cambridge Endowment for Research in Finance, Sarkissian acknowledges financial support from the Social Sciences & Humanities Research Council of Canada, and Schill acknowledges financial support from the Darden School Foundation
