This paper proposes a conditional measure of capital market integration to characterize expected returns in both developed and emerging markets. The measure, derived from a conditional regime-switching model, allows for the description of expected returns in countries that are initially segmented from world capital markets but later become integrated. The results suggest that several emerging markets exhibit time-varying integration, with some markets appearing more integrated than expected based on prior knowledge of investment restrictions, while others remain segmented despite relatively free access for foreigners. The authors use a one-factor model to illustrate the intuition behind the model, which allows for differing prices of variance risk across countries and a world price of covariance risk. The model is conditional, allowing predetermined information to affect expected returns, covariances, variances, and the integration measure. The paper is organized into sections covering the asset pricing framework, the econometric model, data and summary statistics, and results. The results show that the world price of risk is time-varying, and the degree of market integration varies over time. The authors also discuss the estimation issues and alternative estimation approaches.This paper proposes a conditional measure of capital market integration to characterize expected returns in both developed and emerging markets. The measure, derived from a conditional regime-switching model, allows for the description of expected returns in countries that are initially segmented from world capital markets but later become integrated. The results suggest that several emerging markets exhibit time-varying integration, with some markets appearing more integrated than expected based on prior knowledge of investment restrictions, while others remain segmented despite relatively free access for foreigners. The authors use a one-factor model to illustrate the intuition behind the model, which allows for differing prices of variance risk across countries and a world price of covariance risk. The model is conditional, allowing predetermined information to affect expected returns, covariances, variances, and the integration measure. The paper is organized into sections covering the asset pricing framework, the econometric model, data and summary statistics, and results. The results show that the world price of risk is time-varying, and the degree of market integration varies over time. The authors also discuss the estimation issues and alternative estimation approaches.