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Reversals in Global Market Integration and Funding Liquidity

Amir Akbari, Francesca Carrieri and Aytek Malkhozov

No 1202, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper looks at the reversals in global financial integration through the funding liquidity lens. First, we construct a segmentation indicator based on differences in funding liquidity across countries as measured by the performance of betting-against-beta strategies. Second, we find that funding liquidity shocks help explain recent reversals in integration in the absence of explicit foreign investment barriers. These findings are consistent with tighter limits to arbitrage and increased home bias during funding distress periods. Our empirical analysis is guided by a margin-CAPM model generalized to an international setting.

Keywords: International Finance; Market Segmentation; Integration Reversals; Funding Liquidity (search for similar items in EconPapers)
JEL-codes: F36 G01 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2017-03
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1202

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DOI: 10.17016/IFDP.2017.1202

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