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    Crises, Capital Controls, and Financial Integration

    Yeyati, Eduardo Levy; Schmukler, Sergio L.; Horen, Neeltje Van | November 2008
    Abstract
    This paper analyzes the effects of capital controls and crises on financial integration, using stocks from emerging economies that trade in both domestic and international markets. The cross-market premium (the ratio between the domestic and the international market price of cross-listed stocks) provides a valuable measure of how capital controls and crises affect international financial integration. The paper shows that, contrary to the common perception that capital controls can be easily evaded, they do affect the cross-market premium in a sustainable way. Controls on capital inflows put downward pressure on domestic markets relative to international ones, generating a negative premium. The opposite happens with controls on capital outflows. This signals the inability of market participants to engage in perfect arbitrage, due to the segmentation of domestic markets from international ones. Crises affect financial integration by generating more volatility in the premium and putting more downward pressure on domestic prices.
    Citation
    Yeyati, Eduardo Levy; Schmukler, Sergio L.; Horen, Neeltje Van. 2008. Crises, Capital Controls, and Financial Integration. © Asian Development Bank. http://hdl.handle.net/11540/3709. License: CC BY 3.0 IGO.
    Keywords
    Financial Stability
    Financial Management System
    Financial Restructuring
    Capital Market Development
    Erosion
    Market Development
    Economics
    Erosion
    International Economics
    International Financial Market
    Multilateral Financial Institutions
    Economic Recession
    Market
    Crisis
    Business recessions
    Multilateral development banks
    Regulatory reform
    Capital
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    Citable URI
    http://hdl.handle.net/11540/3709
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    Author
    Yeyati, Eduardo Levy
    Schmukler, Sergio L.
    Horen, Neeltje Van
    Theme
    Finance
    Economics
    Labor Migration
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise