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

Author

Listed:
  • 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

Suggested Citation

  • Eduardo Levy-Yeyati & Angel Ubide, 2000. "Crises, Contagion, and the Closed-End Country Fund Puzzle," IMF Staff Papers, Palgrave Macmillan, vol. 47(1), pages 1-3.
    • Handle: RePEc:pal:imfstp:v:47:y:2000:i:1:p:3
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    Cited by:

    1. Eduard Hochreiter & Helmut Wagner, 2002. "The Road to the Euro: Exchange Rate Arrangements in European Transition Economies," The ANNALS of the American Academy of Political and Social Science, , vol. 579(1), pages 168-182, January.
    2. Eduardo Levy Yeyati & Sergio Luis Schmukler & Neeltje Van Horen, 2006. "International Financial Integration through the Law of One Price," Business School Working Papers 2006-01, Universidad Torcuato Di Tella.
    3. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    4. Laurence Copeland, 2007. "Arbitrage Bounds and the Time Series Properties of the Discount on UK Closed‐End Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 313-330, January.
    5. Chan, Kalok & Kot, Hung Wan & Li, Desmond, 2008. "Portfolio concentration and closed-end fund discounts: Evidence from the China market," Emerging Markets Review, Elsevier, vol. 9(2), pages 129-143, June.
    6. Caramazza, Francesco & Ricci, Luca & Salgado, Ranil, 2004. "International financial contagion in currency crises," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 51-70, February.
    7. Mr. Ranil M Salgado & Mr. Luca A Ricci & Mr. Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 2000/055, International Monetary Fund.
    8. 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, vol. 18(1-2), pages 40-49, March.
    9. Helmut Wagner, 2005. "Globalization and financial instability: Challenges for exchange rate and monetary policy," International Journal of Social Economics, Emerald Group Publishing, vol. 32(7), pages 616-638, July.
    10. Samuel Agyei‐Ampomah & J. R. Davies, 2005. "Excess Volatility and UK Investment Trusts," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5‐6), pages 1033-1062, June.
    11. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1098-1121, November.
    12. Sun, Qian & Tong, Wilson H. S., 2000. "The effect of market segmentation on stock prices: The China syndrome," Journal of Banking & Finance, Elsevier, vol. 24(12), pages 1875-1902, December.
    13. Norman Loayza & Humberto Lopez & Angel Ubide, 1999. "Comovement and Macroeconomic Interdependence: Evidence for Latin America, East Asia, and Europe," Working Papers Central Bank of Chile 60, Central Bank of Chile.
    14. Stylianos X. Koufadakis, 2016. "Mispricing Explanations of Closed-End Funds: A Survey Review," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(1-2), pages 108-135, January-J.
    15. 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, vol. 48(4), pages 708-724, November.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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