Can Cross-Border Funding Frictions Explain Financial Integration Reversals?

We examine the role of funding frictions in international investments. Guided by an international margin-CAPM, we use observed stock prices to infer the variation in the magnitude and the implicit cost of barriers that impede the funding of cross-border positions. Our measure helps explain the dynamics of global market integration, revealing periods when funding barriers become more severe. These periods coincide with reversals in market …