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Stock exchange competition in a simple model of capital market equilibrium

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  • Ramos, Sofia B.
  • von Thadden, Ernst-Ludwig

Abstract

This paper uses a simple model of mean-variance capital markets equilibrium with proportional transactions costs to analyze the competition of stock markets for investors. We assume that equity trading is costly and endogenize transactions costs as variables strategically influenced by stock exchanges. Among other things, the model predicts that increasing financial market correlation leads to a decrease of transaction costs, an increase in cross-border trading activity, and to a decrease in the home bias of international equity flows. These predictions are consistent with the recent evolution of international stock markets.

Suggested Citation

  • Ramos, Sofia B. & von Thadden, Ernst-Ludwig, 2008. "Stock exchange competition in a simple model of capital market equilibrium," Journal of Financial Markets, Elsevier, vol. 11(3), pages 284-307, August.
    • Handle: RePEc:eee:finmar:v:11:y:2008:i:3:p:284-307
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    Citations

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    Cited by:

    1. Hesham Abdelghany, 2015. "The effect of accounting disclosure quality and information asymmetry on the stock market activity ? an applied study on listed companies in the Egyptian stock market," Proceedings of International Academic Conferences 2704127, International Institute of Social and Economic Sciences.
    2. Kim, Heeho & Cho, Seong-Hoon & Kim, Yongku, 2015. "Home bias, risk differential, and cultural spatial spillover effects," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 114-136.
    3. Otchere, Isaac, 2006. "Stock exchange self-listing and value effects," Journal of Corporate Finance, Elsevier, vol. 12(5), pages 926-953, December.
    4. Jérémy Ducros & Angelo Riva, 2014. "The Lyon Stock Exchange: A Struggle for Survival (1866-1914)," PSE Working Papers halshs-00960528, HAL.
    5. Giofré, Maela, 2013. "International diversification: Households versus institutional investors," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 145-176.
    6. Faten Ben Slimane, 2012. "Stock exchange consolidation and return volatility," Managerial Finance, Emerald Group Publishing, vol. 38(6), pages 606-627, May.
    7. Jérémy Ducros & Angelo Riva, 2014. "The Lyon Stock Exchange: A Struggle for Survival (1866-1914)," Working Papers halshs-00960528, HAL.
    8. Sofia B. Ramos, 2003. "Competition Between Stock Exchanges: A Survey," FAME Research Paper Series rp77, International Center for Financial Asset Management and Engineering.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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