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Crises, Contagion, and the Closed-End Country Fund Puzzle

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  • Eduardo Levy-Yeyati

    (International Monetary Fund)

  • Angel Ubide

    (International Monetary Fund)

Abstract

This paper analyzes the behavior of closed-end country fund discounts, including evidence from the Mexican and East Asian crises. It finds that the ratio of fund prices to their fundamental value increases dramatically during a crisis, an anomaly that we denote the "closed-end country fund puzzle." Our results show that the puzzle relates directly to the fact that international investors are less (more) sensitive to changes in local (global) market conditions than domestic investors. This asymmetry implies that foreign participation in local markets can help dampen the effect of a crisis in asset prices in the originating country, at the cost of amplifying contagion to noncrisis countries. Copyright 2000, International Monetary Fund

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 47 (2000)
Issue (Month): 1 ()
Pages: 3

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Handle: RePEc:pal:imfstp:v:47:y:2000:i:1:p:3

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Cited by:
  1. Hughen, J. Christopher & Mathew, Prem G., 2009. "The efficiency of international information flow: Evidence from the ETF and CEF prices," International Review of Financial Analysis, Elsevier, Elsevier, vol. 18(1-2), pages 40-49, March.
  2. Caramazza, Francesco & Ricci, Luca & Salgado, Ranil, 2004. "International financial contagion in currency crises," Journal of International Money and Finance, Elsevier, Elsevier, vol. 23(1), pages 51-70, February.
  3. Chan, Kalok & Kot, Hung Wan & Li, Desmond, 2008. "Portfolio concentration and closed-end fund discounts: Evidence from the China market," Emerging Markets Review, Elsevier, Elsevier, vol. 9(2), pages 129-143, June.
  4. Chin-Shien Lin & Haider A. Khan & Ying-Chieh Wang & Ruei-Yuan Chang, 2006. "A New Approach to Modeling Early Warning Systems for Currency Crises : can a machine-learning fuzzy expert system predict the currency crises effectively?," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-065, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  5. Eduardo Levy Yeyati & Sergio Luis Schmukler & Neeltje Van Horen, 2006. "International Financial Integration through the Law of One Price," Business School Working Papers, Universidad Torcuato Di Tella 2006-01, Universidad Torcuato Di Tella.
  6. Ramchander, Sanjay & Simpson, Marc W. & Thiewes, Harold, 2008. "The effect of macroeconomic news on German closed-end funds," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 48(4), pages 708-724, November.

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