Crises, Capital Controls, and Financial Integration
Eduardo Yeyati Levy
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 provides a valuable measure of how capital controls and crises affect international financial integration. The paper shows that capital controls affect 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 in case of capital outflows. Crises affect financial integration by generating more volatility in the premium and putting more downward pressure on domestic prices. [ADBI WP no.121]
crises; capital controls; financial integration; cross market premium; cross country capital movement; capital controls on inflows; capital controls on outflows; stock market crises; capital market integration
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