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Reversals in Global Market Integration and Funding Liquidity

51 Pages Posted: 5 Nov 2016 Last revised: 15 Jul 2017

Amir Akbari

University of Ontario Institute of Technology

Francesca Carrieri

McGill University - Desautels Faculty of Management

Aytek Malkhozov

Board of Governors of the Federal Reserve System

Date Written: November 4, 2016

Abstract

This paper looks at the reversals in global financial integration through the funding liquidity lens. First, we construct a segmentation indicator based on differences in funding liquidity across countries as measured by the performance of betting-against-beta strategies. Second, we find that funding liquidity shocks help explain recent reversals in integration in the absence of explicit foreign investment barriers. These findings are consistent with tighter limits to arbitrage and increased home bias during funding distress periods. Our empirical analysis is guided by a margin-CAPM model generalized to an international setting.

Keywords: International Finance, Market Segmentation, Integration Reversals, Funding Liquidity

JEL Classification: F36, G01, G12, G15

Suggested Citation

Akbari, Amir and Carrieri, Francesca and Malkhozov, Aytek, Reversals in Global Market Integration and Funding Liquidity (November 4, 2016). Available at SSRN: https://ssrn.com/abstract=2864672

Amir Akbari (Contact Author)

University of Ontario Institute of Technology ( email )

2000 Simcoe Street North
Oshawa, Ontario L1H 7K4
Canada

HOME PAGE: http://www.amir-akbari.com

Francesca Carrieri

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-1582 (Phone)
514-398-3876 (Fax)

Aytek Malkhozov

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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