Limits to International Arbitrage: an Empirical Evaluation

Hans Dewachter and Kristien Smedts

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: This paper studies international financial integration by testing the law of one price across national borders. We extend the methodology as proposed by Chen and Knez (1995) to an international environment and analyze the level of cross-border mispricings. The empirical analysis shows that pricing errors are relatively large. This lack of international financial integration is subsequently analyzed in the market micro-finance literature. We find that micro-factors explain a considerable part of the variance in cross-border pricing errors.

Date: 2004-03
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Related works:
Journal Article: Limits to international arbitrage: an empirical evaluation (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces0401

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