TY - JOUR
T1 - A dark side of international capital market integration
T2 - Domestic investors' view
AU - Kim, In Joon
AU - Kim, So Jung
AU - Yoon, Sun Joong
PY - 2014/9
Y1 - 2014/9
N2 - 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.
AB - 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.
KW - Capital market integration
KW - Correlation effect
KW - G11
KW - G12
KW - Quantity-volatility effect
KW - Welfare loss
UR - http://www.scopus.com/inward/record.url?scp=84902484012&partnerID=8YFLogxK
U2 - 10.1016/j.iref.2014.05.007
DO - 10.1016/j.iref.2014.05.007
M3 - Article
AN - SCOPUS:84902484012
SN - 1059-0560
VL - 33
SP - 238
EP - 256
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -