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Capital control liberalization and stock market development

  • Levine, Ross
  • Zervos, Sara

The authors address two questions: What happens to stock market size, liquidity, volatility, and integration with world capital markets after capital controls are liberalized? And what is the relationship between those indicators of stock market development and regulations about information disclosure, accounting standards, and investor protection? An analysis of data on stock markets in 16 developing countries suggests the following: a) stock markets become larger, more liquid, more integrated internationally, and more volatile after controls on capital and dividend flows are liberalized; b) easy access to information about firms is positively associated with the size and liquidity of stock markets; and c) countries that officially establishinternationally accepted accounting standards and laws to protect investors do not have substantially better- functioning stock markets than countries that do not adopt those official standards.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1622.

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Date of creation: 31 Jul 1996
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Handle: RePEc:wbk:wbrwps:1622
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  9. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 1996. "Financial constraints, uses of funds, and firm growth : an international comparison," Policy Research Working Paper Series 1671, The World Bank.
  10. Ferson, Wayne E & Harvey, Campbell R, 1993. "The Risk and Predictability of International Equity Returns," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 527-66.
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  23. Cho, D Chinhyung & Eun, Cheol S & Senbet, Lemma W, 1986. " International Arbitrage Pricing Theory: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 41(2), pages 313-29, June.
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  25. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-78, May.
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