Does Regulatory Cooperation Help Integrate Equity Markets?

Abstract

This study tests whether cooperation between securities regulators influences global market integration. I measure cooperation using arrangements between securities regulators that enable enhanced cross-border enforcement, better regulatory decisions, and reduced compliance obligations for cross-border activities. These arrangements—formed at different times for different country pairs—are associated with an 11% increase in cross-border investment. I find similar increases using other proxies for market integration. Cross-border investment and market integration thus depend, in part, on regulators working together to extend legal and institutional capacities across borders. This reframes our understanding of the role of institutions in global capital markets.

Keywords: cross-border cooperation, regulatory networks, market integration, capital mobility

JEL Classification: E02, F2, F3, F4, F5, F6, G15, K2, K33, M41