Can Cross-Border Funding Frictions Explain Financial Integration Reversals?

Forthcoming at the Review of Financial Studies

74 Pages Posted: 11 Sep 2017 Last revised: 28 Nov 2020

See all articles by Amir Akbari

Amir Akbari

McMaster University - Michael G. DeGroote School of Business

Francesca Carrieri

McGill University - Desautels Faculty of Management

Aytek Malkhozov

Queen Mary University of London - School of Economics and Finance

Date Written: June 1, 2019

Abstract

We show that constraints on using leverage for foreign positions can act as an international investment barrier. Guided by an international CAPM with leverage constraints, we use observed stock prices to measure the variation in the magnitude and the implicit cost of such cross-border funding barriers. Our measure helps explain the dynamics of global market integration and, in particular, its reversals documented in the literature but not explained by other international investment barriers. We confirm our results using alternative financial integration measures, international capital flows, and institutional portfolio holdings.

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, Can Cross-Border Funding Frictions Explain Financial Integration Reversals? (June 1, 2019). Forthcoming at the Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=3033837 or http://dx.doi.org/10.2139/ssrn.3033837

Amir Akbari (Contact Author)

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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

Queen Mary University of London - School of Economics and Finance ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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