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Crises, Capital Controls, and Financial Integration

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Author Info
Eduardo Yeyati Levy

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Abstract

This paper analyzes the effects of capital controls and crises on financial integration, using stocks from emerging economies that trade in both domestic and international markets. The cross market premium provides a valuable measure of how capital controls and crises affect international financial integration. The paper shows that capital controls affect cross market premium in a sustainable way. Controls on capital inflows put downward pressure on domestic markets relative to international ones, generating a negative premium. The opposite happens in case of capital outflows. Crises affect financial integration by generating more volatility in the premium and putting more downward pressure on domestic prices. [ADBI WP no.121]

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Paper provided by esocialsciences.com in its series Working Papers with number id:2099.

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Date of creation: 2009
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Handle: RePEc:ess:wpaper:id:2099

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Related research
Keywords: crises; capital controls; financial integration; cross market premium; cross country capital movement; capital controls on inflows; capital controls on outflows; stock market crises; capital market integration;

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  1. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2004. "The price of inconvertible deposits: the stock market boom during the Argentine crisis," Economics Letters, Elsevier, vol. 83(1), pages 7-13, April. [Downloadable!] (restricted)
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  2. Melvin, Michael, 2003. "A stock market boom during a financial crisis?: ADRs and capital outflows in Argentina," Economics Letters, Elsevier, vol. 81(1), pages 129-136, October. [Downloadable!] (restricted)
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  3. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2008. "Patterns of international capital raisings," Policy Research Working Paper Series 4687, The World Bank. [Downloadable!]
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  4. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Giovanni Dell'Ariccia & Enrica Detragiache & Michael Mussa & Barry J. Eichengreen, 1998. "Capital Account Liberalization: Theoretical and Practical Aspects," IMF Occasional Papers 172, International Monetary Fund.
  7. Hali J. Edison & Carmen M. Reinhart, 2000. "Capital controls during financial crises: the case of Malaysia and Thailand," International Finance Discussion Papers 662, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2008. "Internationalization and the evolution of corporate valuation," Journal of Financial Economics, Elsevier, vol. 88(3), pages 607-632, June. [Downloadable!] (restricted)
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  10. Henry, Peter B., 2006. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1951, Stanford University, Graduate School of Business. [Downloadable!]
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  11. 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. [Downloadable!]
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  12. Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June. [Downloadable!] (restricted)
  13. Eduardo Levy Yeyati & Augusto de la Torre & Sergio Schmukler, 2003. "Living and Dying with Hard Pegs: The Rise and Fall of Argentina´s Currency Board," Business School Working Papers catorce, Universidad Torcuato Di Tella. [Downloadable!]
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  14. Ross Levine & Sergio Schmukler, 2006. "Internationalization and Stock Market Liquidity," Review of Finance, Springer, vol. 10(1), pages 153-187, 03. [Downloadable!] (restricted)
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  15. Eduardo Levy Yeyati & Sergio L. Schmukler & Neeltje Van Horen, 2008. "Emerging Market Liquidity and Crises," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 668-682, 04-05. [Downloadable!] (restricted)
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  16. Rabinovitch, Ramon & Silva, Ana Cristina & Susmel, Raul, 2003. "Returns on ADRs and arbitrage in emerging markets," Emerging Markets Review, Elsevier, vol. 4(3), pages 225-247, September. [Downloadable!] (restricted)
  17. Kevin Cowan & Jose De Gregorio, 2005. "International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile," Working Papers Central Bank of Chile 322, Central Bank of Chile. [Downloadable!]
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  18. Sebastian Auguste & Kathryn M.E. Dominguez & Herman Kamil & Linda L. Tesar, 2002. "Cross-Border Trading as a Mechanism for Capital Flight: ADRs and the Argentine Crisis," William Davidson Institute Working Papers Series 513, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  19. Broner, Fernando A. & Lorenzoni, Guido & Schmukler, Sergio L., 2004. "Why do emerging economies borrow short term?," Policy Research Working Paper Series 3389, The World Bank. [Downloadable!]
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  20. Levine, Ross & Schmukler, Sergio L., 2007. "Migration, spillovers, and trade diversion: The impact of internationalization on domestic stock market activity," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1595-1612, June. [Downloadable!] (restricted)
  21. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
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  22. Richard N. Cooper, 1999. "Should Capital Controls be Banished?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1999-1), pages 89-142. [Downloadable!]
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