Financial Fragmentation and Insider Arbitrage

S. Klonner, A.S. Rai

    Research output: Working paperDiscussion paperOther research output

    Abstract

    If there were no impediments to the flow of capital across space, then the returns to capital should be equalized. We provide evidence to the contrary. There are large di¤erences in the return to comparable investments across different towns in the state of Tamil Nadu in South India. We explore why these di¤erences are not arbitraged away - and suggest that if an insider has monopoly power in arbitraging across towns then it is in his profit-maximizing interest to reduce but not eliminate the differences in returns to capital.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherEBC
    Number of pages40
    Volume2010-09S
    Publication statusPublished - 2010

    Publication series

    NameEBC Discussion Paper
    Volume2010-09S

    Keywords

    • credit constraints
    • limits to arbitrage

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