Financial Fragmentation and Insider Arbitrage

S. Klonner; A.S. Rai

Financial Fragmentation and Insider Arbitrage

S. Klonner, A.S. Rai

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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 language	English
Place of Publication	Tilburg
Publisher	EBC
Number of pages	40
Volume	2010-09S
Publication status	Published - 2010

Publication series

Name	EBC Discussion Paper
Volume	2010-09S

Keywords

credit constraints
limits to arbitrage

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2010-09SSubmitted manuscript, 580 KB

Cite this

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AB - 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.

KW - credit constraints

KW - limits to arbitrage

M3 - Discussion paper

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T3 - EBC Discussion Paper

BT - Financial Fragmentation and Insider Arbitrage

PB - EBC

CY - Tilburg

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Financial Fragmentation and Insider Arbitrage

Abstract

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Keywords

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