Crises, Capital Controls, and Financial Integration

Crises, Capital Controls, and Financial Integration

This paper analyzes the effects of capital controls and crises on international financial integration, using data on stocks from emerging economies that trade in domestic and international markets. The cross-market premium (the ratio between the do...

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Main Authors: Yeyati, Eduardo Levy, Schmukler, Sergio L., Van Horen, Neeltje
Format: Policy Research Working Paper
Language:English
Published: World Bank, Washington, DC 2012
Subjects:
INTERNATIONAL FINANCIAL INTEGRATION
EMERGING MARKET FINANCE
ADRS
MARKET SEGMENTATION
LAW OF ONE PRICE
Online Access:http://documents.worldbank.org/curated/en/2008/11/10000577/crises-capital-controls-financial-integration
http://hdl.handle.net/10986/6386
id okr-10986-6386
recordtype oai_dc
spelling okr-10986-63862021-04-23T14:02:30Z Crises, Capital Controls, and Financial Integration Yeyati, Eduardo Levy Schmukler, Sergio L. Van Horen, Neeltje INTERNATIONAL FINANCIAL INTEGRATION EMERGING MARKET FINANCE ADRS MARKET SEGMENTATION LAW OF ONE PRICE This paper analyzes the effects of capital controls and crises on international financial integration, using data on stocks from emerging economies that trade in domestic and international markets. The cross-market premium (the ratio between the domestic and international market price of cross-listed stocks) provides a valuable measure of how capital controls and crises affect integration. The paper shows that, contrary to the common perception that capital controls can be easily evaded, they do affect the cross-market premium. Controls on capital inflows put downward pressure on domestic markets relative to international ones, generating a negative premium. The opposite happens with controls on capital outflows. This signals the inability of market participants to engage in perfect arbitrage, due to the segmentation of domestic markets from international ones induced by capital controls. Crises affect financial integration by generating more volatility in the cross-market premium and putting more downward pressure on domestic prices. 2012-05-24T20:10:16Z 2012-05-24T20:10:16Z 2008-11 http://documents.worldbank.org/curated/en/2008/11/10000577/crises-capital-controls-financial-integration http://hdl.handle.net/10986/6386 English Policy Research Working Paper; No. 4770 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic INTERNATIONAL FINANCIAL INTEGRATION
EMERGING MARKET FINANCE
ADRS
MARKET SEGMENTATION
LAW OF ONE PRICE
spellingShingle INTERNATIONAL FINANCIAL INTEGRATION
EMERGING MARKET FINANCE
ADRS
MARKET SEGMENTATION
LAW OF ONE PRICE
Yeyati, Eduardo Levy
Schmukler, Sergio L.
Van Horen, Neeltje
Crises, Capital Controls, and Financial Integration
relation Policy Research Working Paper; No. 4770
description This paper analyzes the effects of capital controls and crises on international financial integration, using data on stocks from emerging economies that trade in domestic and international markets. The cross-market premium (the ratio between the domestic and international market price of cross-listed stocks) provides a valuable measure of how capital controls and crises affect integration. The paper shows that, contrary to the common perception that capital controls can be easily evaded, they do affect the cross-market premium. Controls on capital inflows put downward pressure on domestic markets relative to international ones, generating a negative premium. The opposite happens with controls on capital outflows. This signals the inability of market participants to engage in perfect arbitrage, due to the segmentation of domestic markets from international ones induced by capital controls. Crises affect financial integration by generating more volatility in the cross-market premium and putting more downward pressure on domestic prices.
format Publications & Research :: Policy Research Working Paper
author Yeyati, Eduardo Levy
Schmukler, Sergio L.
Van Horen, Neeltje
author_facet Yeyati, Eduardo Levy
Schmukler, Sergio L.
Van Horen, Neeltje
author_sort Yeyati, Eduardo Levy
title Crises, Capital Controls, and Financial Integration
title_short Crises, Capital Controls, and Financial Integration
title_full Crises, Capital Controls, and Financial Integration
title_fullStr Crises, Capital Controls, and Financial Integration
title_full_unstemmed Crises, Capital Controls, and Financial Integration
title_sort crises, capital controls, and financial integration
publisher World Bank, Washington, DC
publishDate 2012
url http://documents.worldbank.org/curated/en/2008/11/10000577/crises-capital-controls-financial-integration
http://hdl.handle.net/10986/6386
_version_ 1764399958233972736

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