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Cross-Border Listings, Capital Controls, and U.S. Equity Flows to Emerging Markets

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Author Info

  • Hali J. Edison
  • Francis E. Warnock

Abstract

We analyze capital flows to emerging markets in a framework that incorporates two quantitative measures of financial integration, the intensity of capital controls and the extent of cross border listings, while controlling for traditional global (push) and country specific (pull) factors. Two important results emerge. First, the cross listing of an emerging market firm on a U.S. exchange is an important but short lived capital flows event, suggesting that the cross listed stock is in effect a new security that U.S. investors quickly bring into their portfolios. Second, the effect of financial liberalization on capital flows is more nuanced than is suggested by event studies: A reduction in capital controls results in increased inflows only when the controls are binding. Among the standard push and pull factors, global factors are important-slack U.S. economic activity is associated with increased flows to emerging markets-and U.S. investors appear to chase expected, but not past, returns.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/236.

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Length: 43
Date of creation: 01 Dec 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/236

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Keywords: Capital flows; Emerging markets; Capital controls; Economic models; equity flows; foreign ownership; capital inflows; foreign ownership restrictions; equity inflows; foreign investment; international capital; stock exchanges; international capital flows; foreign securities; capital flow; capital markets; equity investment; direct investment; foreign market; foreign markets; foreign security; imperfect capital markets; global stocks; equity portfolios; private capital flows; foreign capital; foreign investors; equity returns; industrial country; foreign direct investment; private capital; capital mobility; insider trading; fixed income securities; foreign issuer; capital asset pricing; stock market; risk aversion; investment decisions; securities transactions; capital asset; international securities; foreign company; securities laws; equity financing; stocks listing; international investors;

References

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  1. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why are foreign firms listed in the U.S. worth more?," Journal of Financial Economics, Elsevier, vol. 71(2), pages 205-238, February.
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  3. Francis E. Warnock & Hali J. Edison, 2001. "A Simple Measure of the Intensity of Capital Controls," IMF Working Papers 01/180, International Monetary Fund.
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  8. Torsten Sløk & Hali J. Edison & Luca Antonio Ricci & Ross Levine, 2002. "International Financial Integration and Economic Growth," IMF Working Papers 02/145, International Monetary Fund.
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  19. Marco Pagano & Ailsa A. Roell & Joseph Zechner, 1999. "The Geography of Equity Listing; Why Do Companies List Abroad?," CSEF Working Papers 28, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Sep 2001.
  20. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers 691, Board of Governors of the Federal Reserve System (U.S.).
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  22. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
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Cited by:
  1. Guyot, Alexis & Lagoarde-Segot, Thomas & Neaime, Simon, 2014. "Foreign shocks and international cost of equity destabilization. Evidence from the MENA region," Emerging Markets Review, Elsevier, vol. 18(C), pages 101-122.

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