Global Capital Markets: An Imperfect Network

Istvan Magas

Society and Economy, 2005, vol. 27, issue 1, 43-61

Abstract: The network of international capital markets is modeled as a global communications network, where information flows in one channel and funds flow in the other. Based on the fundamental logic of the measurement of information (Reza 1992) and on the standard assumptions of the Capital Asset Pricing Model (CAPM) (Shapiro 1999), we demonstrate that these markets operate at very large losses. Global markets are far less efficient than long established domestic capital markets of developed countries, which do relatively well in transmitting information and funds. Along with the integration of national capital markets into a more tightly knit international network, however, major improvements in efficiency can be expected. Integration, though, implies a need for some kind of global regulations to help standardise the flow of information and the routines of pricing risk. Standardisation in turn can be expected to decrease risks and increase the efficiency of distributing funds. From an information theoretical perspective the introduction of mutually accepted regulations, is desired, since it would help to increase the capacity utilisation of the distribution system as such. A better-utilised communications network will bring faster clearing international markets and cheaper funds.

Keywords: information theory; global finance; international portfolio investing (search for similar items in EconPapers)
Date: 2005
Note: This line of research is a continuation and refinement of my earlier work (Magas 2001) that reflects on the comments and criticism which I have received on the first version. The author would like to thank professor Tamás Szentes, Mr. Krisztián Csubak, Mr. Péter Bárczy for their comments to help finalise some debated points of earlier versions of the paper. In addition, special thanks are due to an unknown referee who has contributed, to a large extent, with useful comments and criticism to the refinement of the model and to the strengthening of some key points.
References: Add references at CitEc
Citations:

Downloads: (external link)
http://akademiai.com/content/l4468hq147605852/fulltext.pdf (application/pdf)
subscription

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aka:soceco:v:27:y:2005:i:1:p:43-61

Ordering information: This journal article can be ordered from
Akadémiai Kiadó Zrt., P. O. Box 245, H-1519 Budapest, Hungary
https://akjournals.com/

Access Statistics for this article

Society and Economy is currently edited by Szent-Iványi, Balázs

More articles in Society and Economy from Akadémiai Kiadó, Hungary
Bibliographic data for series maintained by Kriston, Orsolya ().