Regional Financial Integration in the Caribbean Evidence From Financial and Macroeconomic Data

This paper assesses the extent of regional financial integration in the Caribbean Community (CARICOM) by analyzing equity prices in the region and rigidity of external financing constraints. The results are presented in a cross-regional perspective. The Caribbean stock markets are not as well integr...

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Bibliographic Details
Main Author: Kwon, Goohoon
Other Authors: Espinoza, Raphael
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2009
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Regional Financial Integration in the Caribbean  |b Evidence From Financial and Macroeconomic Data  |c Goohoon Kwon, Raphael Espinoza 
260 |a Washington, D.C.  |b International Monetary Fund  |c 2009 
300 |a 35 pages 
651 4 |a Trinidad and Tobago 
653 |a Stock exchanges 
653 |a Current account 
653 |a International economics 
653 |a Current Account Adjustment 
653 |a International Financial Markets 
653 |a Regional integration 
653 |a Finance 
653 |a General Financial Markets: General (includes Measurement and Data) 
653 |a Financial markets 
653 |a Balance of payments 
653 |a Stocks 
653 |a Short-term Capital Movements 
653 |a Financial Aspects of Economic Integration 
653 |a International economic integration 
653 |a Investments: Stocks 
653 |a Financial Instruments 
653 |a Non-bank Financial Institutions 
653 |a Pension Funds 
653 |a Stock markets 
653 |a Exports and Imports 
653 |a Economic integration 
653 |a Investment & securities 
653 |a Institutional Investors 
653 |a Finance: General 
653 |a International finance 
653 |a Financial institutions 
653 |a Financial integration 
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520 |a This paper assesses the extent of regional financial integration in the Caribbean Community (CARICOM) by analyzing equity prices in the region and rigidity of external financing constraints. The results are presented in a cross-regional perspective. The Caribbean stock markets are not as well integrated as one would expect from the extent of cross-listing and importance of regional banking groups: price differentials of cross-listed stocks reach an average of 5 percent. Auto-Regressive models suggest that these price differentials are only slowly arbitraged away, with half-lives exceeding 7 worked days, even when looking only at large arbitrage opportunities (using a Threshold Auto-Regressive model). A speculative methodology using macroeconomic data seems to confirm these findings. A strong mean reversion of the current account (respectively regional trade imbalances) is interpreted, following Obstfeld and Taylor (2004), as a lack of ways to finance current account deficits, i.e. a lack of global (respectively regional) financial integration. The region appears to be much less integrated than the EU15 or the ASEAN+3 groups, although it fares well compared to other LDCs