Financial Fragmentation and Insider Arbitrage

S. Klonner, A.S. Rai

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    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
    Number of pages40
    Publication statusPublished - 2010

    Publication series

    NameEBC Discussion Paper


    • credit constraints
    • limits to arbitrage


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