Stock exchanges competition in a simple model of capital market equilibrium

• Autor(a) principal: Ramos, S. B.
• Data de Publicação: 2008
• Outros Autores: von Thadden, E.-L.
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/14661
• topic: Stock exchange competition; Capital markets equilibrium; Transactions costs; Home bias; Cross-border equity flows

This paper uses a simple model of mean-variance capital markets equilibrium with proportional transactions costs to analyze the competition of stock markets for investors. We assume that equity trading is costly and endogenize transactions costs as variables strategically influenced by stock exchanges. Among other things, the model predicts that increasing financial market correlation leads to a decrease of transaction costs, an increase in cross-border trading activity, and to a decrease in the home bias of international equity flows. These predictions are consistent with the recent evolution of international stock markets.