Financial Fragmentation and Insider Arbitrage
AbstractIf there were no impediments to the flow of capital across space, then the returns to capital should be equalized. We provide evidence to the contrary. There are large differences in the return to comparable investments across different towns in the state of Tamil Nadu in South India. We explore why these differences are not arbitraged away - and suggest that if an insider has monopoly power in arbitraging across towns then it is in his profit-maximizing interest to reduce but not eliminate the di¤erences in returns to capital.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-36S.
Date of creation: 2010
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credit constraints; limits to arbitrage;
Find related papers by JEL classification:
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
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