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Managing Risks in Financial Market Development

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  • International Monetary Fund
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    Abstract

    This paper proposes an integrated and risk-based approach to the sequencing and coordination of reforms to develop domestic financial markets. The paper argues that there is a hierarchy of financial markets that reflects the complexity of risks in each market and the interlinkages among markets. On the basis of this hierarchy, a sequencing of market development and risk-mitigation measures is proposed to minimize both macroeconomic and financial risks. Capital account opening can complement (but not substitute for) domestic institutional and market reforms to support the growth of local financial markets. The paper also argues that domestic institutional investors are critical to market development and risk mitigation.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16548
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/116.

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    Length: 37
    Date of creation: 01 Jun 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/116

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    Related research

    Keywords: Capital account liberalization; Financial systems; Financial risk; bond; financial markets; money market; financial institutions; capital markets; capital market; government securities; equity markets; foreign capital; financial market; government bond market; bond markets; bond market; financial sector; stock exchange; financial market development; hedging; financial system; equity market; bonds; government bond; debt securities; capital flows; capital market development; domestic financial markets; financial stability; financial liberalization; money markets; securities markets; government bonds; corporate bond; domestic capital; government bond markets; stock market; derivatives markets; volatile capital flows; development of bond markets; capital account opening; securities settlement; bond yields; domestic capital markets; investor confidence; capital standards; securities market; financial reforms; interest rate risk; derivatives market; government bond yields; capital adequacy; bond prices; volatile capital; domestic financial liberalization; international capital; hedging strategies; credit expansion; corporate bond market; equity investments; government bond market development; liberalization of capital flows; domestic bond market; capital market liberalization; interest rate liberalization; domestic bond; forward contracts; corporate bonds; national stock exchange; capital inflows; stock exchanges; financial derivatives; capital outflows; domestic capital market; portfolio investment; bond market development; financial globalization; financial policies; equity securities; capital mobility; domestic bond markets; stock markets; developing government bond; capital market transactions; bond holders; international capital mobility; brokerage services; financial assets; hedging instruments; domestic financial sector; debt-servicing costs; financial cycles; term bond; liberalization of capital; forward markets; discount rate; deposit rates; local capital markets; capital account transactions; bond investments; forward market; money market rates; long-term bonds; capital income; short-term funds; developing government bond markets; insider trading; financial repression; capital income taxation; currency risk; securities commissions; liquidity support; border capital flows; interest rate swaps; domestic financial system; international standards; securities trading; securities settlement systems; underwriting standards; bond contracts; futures prices; financial instability; term bonds; capital accumulation; liquid markets; financial intermediation; long-term bond yields; development of domestic bond; financial reform; short-term capital; domestic capital market development; local capital market; strong capital inflows; purchase of securities; money market instruments; reserve requirements;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Garry J. Schinasi & T. Todd Smith, 1998. "Fixed-Income Markets in the United States, Europe, and Japan-Some Lessons for Emerging Markets," IMF Working Papers 98/173, International Monetary Fund.
    2. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
    3. 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.
    4. Impavido, Gregorio & Musalem, Alberto R. & Tressel, Thierry, 2003. "The impact of contractual savings institutions on securities markets," Policy Research Working Paper Series 2948, The World Bank.
    5. Dubravko Mihaljek & Michela Scatigna & Agustin Villar, 2002. "Recent trends in bond markets - The development of bond markets in emerging economies," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 13-41 Bank for International Settlements.
    6. Rodrigo Cifuentes & Jorge Desormeaux & Claudio González, 2002. "Capital markets in Chile: from financial repression to financial deepening," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 86-102 Bank for International Settlements.
    7. M S Mohanty, 2002. "Improving liquidity in government bond markets: what can be done?," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 49-80 Bank for International Settlements.
    8. Jorge Desormeaux, 2002. "Capital Markets in Chile: From Financial Repression to Financial Deepening," Economic Policy Papers Central Bank of Chile 04, Central Bank of Chile.
    9. Philip Turner, 2002. "Bond markets in emerging economies: an overview of policy issues," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 1-12 Bank for International Settlements.
    10. Menzie D. Chinn & Hiro Ito, 2002. "Capital Account Liberalization, Institutions and Financial Development: Cross Country Evidence," NBER Working Papers 8967, National Bureau of Economic Research, Inc.
    11. Richard J. Herring & Nathporn Chatusripitak, 2000. "The Case of the Missing Market: The Bond Market and Why It Matters for Financial Development," Center for Financial Institutions Working Papers 01-08, Wharton School Center for Financial Institutions, University of Pennsylvania.
    12. Mark R. Stone, 2000. "The Corporate Sector Dynamics of Systemic Financial Crises," IMF Working Papers 00/114, International Monetary Fund.
    13. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries," IMF Occasional Papers 220, International Monetary Fund.
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    Cited by:
    1. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2007. "Capital market development : whither Latin America ?," Policy Research Working Paper Series 4156, The World Bank.
    2. Zsófia Ãrvai & Geoffrey Heenan, 2008. "A Framework for Developing Secondary Markets for Government Securities," IMF Working Papers 08/174, International Monetary Fund.
    3. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187, October.
    4. Lucio Vinhas de Souza, 2004. "Financial Liberalization and Business Cycles: The Experience of Future EU Member States in the Baltics and Central Eastern Europe," International Finance 0403009, EconWPA.
    5. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications, The World Bank, number 7336, October.
    6. repec:hal:wpaper:hal-00188615 is not listed on IDEAS
    7. Andrew Sheng, 2006. "Building National and Regional Financial Markets: The East Asian Experience," Papers Presented at Global Meetings of the Emerging Markets Forum 2006regfinmkt, Emerging Markets Forum.
    8. repec:hal:cepnwp:hal-00188615 is not listed on IDEAS

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