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A dark side of international capital market integration: Domestic investors' view

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  • Kim, In Joon
  • Kim, So Jung
  • Yoon, Sun-Joong

Abstract

We explore the impact of capital market integration on the welfare of domestic investors, in particular, with closed-form solutions to optimal asset holdings and utility changes in a simple equilibrium framework wherein agents have mean–variance utility. Our model allows us to show the welfare loss of domestic investors with inefficient portfolios from market integration. The results indicate that only efficient portfolio holdings before integration can guarantee the welfare enhancement of all domestic investors, in contrast to the extant literature, which emphasizes the beneficial effects of market integration. In addition, we decompose the welfare changes of domestic investors into two components, i.e., the correlation effect and the quantity–volatility effect, to enhance our understanding of economic implications.

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  • Kim, In Joon & Kim, So Jung & Yoon, Sun-Joong, 2014. "A dark side of international capital market integration: Domestic investors' view," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 238-256.
    • Handle: RePEc:eee:reveco:v:33:y:2014:i:c:p:238-256
    DOI: 10.1016/j.iref.2014.05.007
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    3. Jalel Euchi & Dalel Bouzidi & Zahira Bouzid, 2019. "Interpretive Structural Modeling Technique to Analyze the Interactions Between the Factors Influencing the Performance of the Reverse Logistics Chain," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 20(1), pages 43-55, March.

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    More about this item

    Keywords

    Capital market integration; Welfare loss; Correlation effect; Quantity–volatility effect;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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