The Geography of Risk Capital

60 Pages Posted: 4 Apr 2013 Last revised: 9 Jul 2014

Andrea Buraschi

The University of Chicago; Imperial College Business School; Centre for Economic Policy Research (CEPR)

Murat Cahit Meguturk

Imperial College London

Emrah Sener

Ozyegin University

Date Written: July 1, 2014

Abstract

We use the relative pricing of pairs of emerging market (EM) sovereign bonds issued in both dollars and euros to study capital markets frictions during periods of financial distress. While there is no evidence of mispricing before 2007, during the 2007–2008 crisis we document a persistent anomaly that resulted in segmented EM bond markets. The sign of mispricing varies cross-sectionally, depending on the domestic currency of funding banks, and its magnitude depends on the degree of fragility in wholesale funding markets. Neither liquidity nor short-selling constraints can account for this anomaly. We document the impact of non-conventional policy interventions.

Keywords: Limits to Arbitrage, Market Anomalies, Financial Constraints, Frictions, Wholesale Financing

JEL Classification: G01, G12

Suggested Citation

Buraschi, Andrea and Meguturk, Murat Cahit and Sener, Emrah, The Geography of Risk Capital (July 1, 2014). Chicago Booth Research Paper No. 13-44; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2245213 or http://dx.doi.org/10.2139/ssrn.2245213

Andrea Buraschi (Contact Author)

The University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
7738347123 (Phone)

HOME PAGE: http://www.andreaburaschi.com/

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://www.andreaburaschi.com/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Murat Cahit Meguturk

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Emrah Sener

Ozyegin University ( email )

Kusbakisi Cd. No: 2
Altunizade, Uskudar
Istanbul, 34662
Turkey

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