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Aytek Malkhozov – Federal Reserve Board – Brown Bag Series
19 April 2018 @ 1:30 pm - 2:30 pm
We examine the role of funding frictions in international investments. Guided by an international CAPM with funding constraints, we use the diﬀerences in the betting-against-beta portfolio performance between countries to infer the magnitude and the implicit cost of barriers that impede the funding of cross-border positions. We ﬁnd such cross-border funding barriers to be economically signiﬁcant. Despite an overall downward trend, our measure reveals periods when cross-border funding frictions become more severe. These periods coincide with increases in market segmentation documented in the literature but not explained by the variation in other international investment barriers.