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Can Cross-Border Funding Frictions Explain Financial Integration Reversals?

Author

Listed:
  • Amir Akbari
  • Francesca Carrieri
  • Aytek Malkhozov

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.

Suggested Citation

  • Amir Akbari & Francesca Carrieri & Aytek Malkhozov, 2022. "Can Cross-Border Funding Frictions Explain Financial Integration Reversals?," The Review of Financial Studies, Society for Financial Studies, vol. 35(1), pages 394-437.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:1:p:394-437.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab009
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    Cited by:

    1. Attig, Najah & Guedhami, Omrane & Nazaire, Gregory & Sy, Oumar, 2023. "What explains the benefits of international portfolio diversification?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    2. Sadok El Ghoul & Omrane Guedhami & Sattar A. Mansi & Oumar Sy, 2023. "Event studies in international finance research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(2), pages 344-364, March.

    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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