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Stock exchange competition in a simple model of capital market equilibrium

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

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.

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Article provided by Elsevier in its journal Journal of Financial Markets.

Volume (Year): 11 (2008)
Issue (Month): 3 (August)
Pages: 284-307

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Handle: RePEc:eee:finmar:v:11:y:2008:i:3:p:284-307
Contact details of provider: Web page: http://www.elsevier.com/locate/finmar

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  8. Constantinides, George M, 1986. "Capital Market Equilibrium with Transaction Costs," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 842-62, August.
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  18. Benn Steil, . "Changes in the Ownership and Governance of Securities Exchanges: Causes and Consequences," Center for Financial Institutions Working Papers 02-15, Wharton School Center for Financial Institutions, University of Pennsylvania.
  19. Hong Liu, 2004. "Optimal Consumption and Investment with Transaction Costs and Multiple Risky Assets," Journal of Finance, American Finance Association, vol. 59(1), pages 289-338, 02.
  20. Harald Hau, 2001. "Location Matters: An Examination of Trading Profits," Journal of Finance, American Finance Association, vol. 56(5), pages 1959-1983, October.
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