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Market Segmentation: Venezuelan ADRs

Author

Listed:
  • González, Maximiliano

    (School of Management, Universidad de los Andes)

  • Garay, Urbi

    (IESA)

Abstract

The foreign exchange controls imposed by Venezuela in 2003, constitute a natural experiment that allows researchers to observe the effects of exchange controls on stock market segmentation. This paper provides empirical evidence that, although the Venezuelan capital market as a whole was highly segmented before the controls were imposed, shares in the firm CANTV were, through its American Depositary Receipts (ADRs), partially integrated with the global market. Following the imposition of the exchange controls, this integration was lost. The research also documents the spectacular and apparently contradictory rise experienced by the Caracas Stock Exchange during the serious economic crisis of 2003. It is argued that, as was the case in Argentina in 2002, the rise in share prices was caused because the depreciation of the Bolívar in the parallel currency market increased the local price of the stocks that had associated ADRs, which are negotiated in dollars.

Suggested Citation

  • González, Maximiliano & Garay, Urbi, 2012. "Market Segmentation: Venezuelan ADRs," Galeras. Working Papers Series 035, Universidad de Los Andes. Facultad de Administración. School of Management.
    • Handle: RePEc:uac:somwps:035
    as

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    File URL: https://repositorio.uniandes.edu.co/bitstream/handle/1992/46363/Galeras-de-administraci%C3%B3n-35.pdf
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    References listed on IDEAS

    as
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    2. Errunza, Vihang & Losq, Etienne, 1985. "International Asset Pricing under Mild Segmentation: Theory and Test," Journal of Finance, American Finance Association, vol. 40(1), pages 105-124, March.
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    8. Ms. Natalia T. Tamirisa & Mr. R. B. Johnston, 1998. "Why Do Countries Use Capital Controls?," IMF Working Papers 1998/181, International Monetary Fund.
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