Contagion and firms'internationalization in Latin America : evidence from Mexico, Brazil, and Chile
AbstractThe author investigates whether contagion matters when emerging market firms cross-list their stocks in a developed capital market. She develops a rational expectations model where financial markets are segmented along emerging markets'borders and contagion spreads from one emerging market to another through the actions of international investors rebalancing their portfolio using stocks cross-listed in the developed market. The author finds that contagion is a cost of internationalization as cross-listed stocks are more affected by contagion than pure domestic stocks. Furthermore, a welfare analysis of international cross-listing versus financial autarky suggests that the benefits of internationalization in terms of less information asymmetry and better market efficiency offset the costs of contagion. Her model is able to explain some transmission of the 1998 Brazilian crisis to Mexico and Chile.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4076.
Date of creation: 01 Dec 2006
Date of revision:
Markets and Market Access; Investment and Investment Climate; Access to Markets; Financial Intermediation; Economic Theory&Research;
This paper has been announced in the following NEP Reports:
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.:
- Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
- Ross Levine & Sergio L. Schmukler, 2003.
"Migration, Spillovers,and Trade Diversion: The Impact of Internationalization on Stock Market Liquidity,"
NBER Working Papers
9614, National Bureau of Economic Research, Inc.
- Levine, Ross & Schmukler, Sergio L., 2003. "Migration, spillovers, and trade diversion : the impact of internationalization on stock market liquidity," Policy Research Working Paper Series 3046, The World Bank.
- Foerster, Stephen R. & Karolyi, G. Andrew, 1998. "Multimarket trading and liquidity: a transaction data analysis of Canada-US interlistings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 393-412, December.
- Guillermo A. Calvo & Enrique G. Mendoza, 1999.
"Regional Contagion and the Globalization of Securities Markets,"
NBER Working Papers
7153, National Bureau of Economic Research, Inc.
- Calvo, Guillermo A. & Mendoza, Enrique G., 2000. "Rational contagion and the globalization of securities markets," Journal of International Economics, Elsevier, vol. 51(1), pages 79-113, June.
- Karolyi, G Andrew & Stulz, Rene M, 1996.
" Why Do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements,"
Journal of Finance,
American Finance Association, vol. 51(3), pages 951-86, July.
- G. Andrew Karoly & Rene Stulz, . "Why do Markets Move Together? An Investigation of U.S.-Japan Stock Return Comovements," Research in Financial Economics 9603, Ohio State University.
- Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003.
"A New Approach to Measuring Financial Contagion,"
Review of Financial Studies,
Society for Financial Studies, vol. 16(3), pages 717-763, July.
- LONGIN, François & SOLNIK, Bruno, 2000. "Extreme correlation of international equity markets," Les Cahiers de Recherche 705, HEC Paris.
- Paul R. Masson, 1998. "Contagion," IMF Working Papers 98/142, International Monetary Fund.
- Jeffrey A. Frankel & Sergio L. Schmukler, 1996.
"Country fund discounts and the Mexican crisis of December 1994: did local residents turn pessimistic before international investors?,"
International Finance Discussion Papers
563, Board of Governors of the Federal Reserve System (U.S.).
- Jeffrey Frankel & Sergio Schmukler, 1996. "Country fund discounts and the mexican crisis of December 1994: Did local residents turn pessimistic before international investors?," Open Economies Review, Springer, vol. 7(1), pages 511-534, March.
- Alexander, Gordon J & Eun, Cheol S & Janakiramanan, S, 1987. " Asset Pricing and Dual Listing on Foreign Capital Markets: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 151-58, March.
- Longin, François & Solnik, Bruno H, 2000. "Extreme Correlation of International Equity Markets," CEPR Discussion Papers 2538, C.E.P.R. Discussion Papers.
- Franklin Allen & Douglas Gale, 1998. "Financial Contagion Journal of Political Economy," Center for Financial Institutions Working Papers 98-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.