Can Cross-Border Funding Frictions Explain Financial Integration Reversals?

Published: 23 March 2022

Authors: A. Akbari, Francesca Carrieri and A. Malkhozov

Publication: The Review of Financial Studies, Volume 35, Issue 1, January 2022, Pages 394–437


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.

Desautels 22

In recognition of research excellence as it relates to publications in top-tier management journals, our Faculty has compiled a list of high quality, peer-reviewed management journals, which is referred to as the Desautels 22.

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