IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v27y2008i6p1013-1027.html
   My bibliography  Save this article

Cross-border listings, capital controls, and equity flows to emerging markets

Author

Listed:
  • Edison, Hali J.
  • Warnock, Francis E.

Abstract

We investigate the impact of two types of financial liberalizations on short- and long-horizon capital flows to emerging markets in a framework that controls for push and pull factors. The first type of liberalization, a reduction in capital controls, is countrywide but uncertain, because its extent and permanence are not known with certainty. The second type, a cross-border listing, is a firm-level liberalization that has no uncertainty. Consistent with theoretical predictions, we find that the deterministic cross-listing results in an immediate but short-lived increase in capital inflows. In contrast, the uncertain reduction in capital controls results in increased inflows only over a longer horizon, if at all.

Suggested Citation

  • Edison, Hali J. & Warnock, Francis E., 2008. "Cross-border listings, capital controls, and equity flows to emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 1013-1027, October.
    • Handle: RePEc:eee:jimfin:v:27:y:2008:i:6:p:1013-1027
    as

    Download full text from publisher

    File URL: https://www.sciencedirect.com/science/article/pii/S0261-5606(08)00078-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    2. Edison, Hali J. & Warnock, Francis E., 2003. "A simple measure of the intensity of capital controls," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 81-103, February.
    3. Fischer, S. & Cooper, R.N. & Dornbusch, R. & Garber, P.M. & Massad, C. & Polak, J.J. & Rodrik, D. & Tarapore, S.S., 1998. "Should the IMF Pursue Capital-Account Convertibility?," Princeton Essays in International Economics 207, International Economics Section, Departement of Economics Princeton University,.
    4. Hyuk Choe & Bong-Chan Kho & René M. Stulz, 2005. "Do Domestic Investors Have an Edge? The Trading Experience of Foreign Investors in Korea," The Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 795-829.
    5. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
    6. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    7. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why are foreign firms listed in the U.S. worth more?," Journal of Financial Economics, Elsevier, vol. 71(2), pages 205-238, February.
    8. Brennan, Michael J & Cao, H Henry, 1997. "International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-1880, December.
    9. John Y. Campbell & Robert J. Shiller, 1988. "Stock Prices, Earnings and Expected Dividends," Cowles Foundation Discussion Papers 858, Cowles Foundation for Research in Economics, Yale University.
    10. Brennan, Michael J. & Henry Cao, H. & Strong, Norman & Xu, Xinzhong, 2005. "The dynamics of international equity market expectations," Journal of Financial Economics, Elsevier, vol. 77(2), pages 257-288, August.
    11. Mark H. Lang & Karl V. Lins & Darius P. Miller, 2003. "ADRs, Analysts, and Accuracy: Does Cross Listing in the United States Improve a Firm's Information Environment and Increase Market Value?," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 317-345, May.
    12. Philippe Bacchetta & Eric van Wincoop, 2000. "Capital Flows to Emerging Markets: Liberalization, Overshooting, and Volatility," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 61-98, National Bureau of Economic Research, Inc.
    13. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
    14. Bekaert, G. & Harvey, C. R. & Lumsdaine, R. L., 2002. "The dynamics of emerging market equity flows," Journal of International Money and Finance, Elsevier, vol. 21(3), pages 295-350, June.
    15. Auguste, Sebastian & Dominguez, Kathryn M.E. & Kamil, Herman & Tesar, Linda L., 2006. "Cross-border trading as a mechanism for implicit capital flight: ADRs and the Argentine crisis," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1259-1295, October.
    16. Bohn, Henning & Tesar, Linda L, 1996. "U.S. Equity Investment in Foreign Markets: Portfolio Rebalancing or Return Chasing?," American Economic Review, American Economic Association, vol. 86(2), pages 77-81, May.
    17. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
    18. Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2004. "The Performance of International Equity Portfolios," International Finance Discussion Papers 817, Board of Governors of the Federal Reserve System (U.S.).
    19. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    20. Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," The World Bank Economic Review, World Bank, vol. 11(3), pages 451-470, September.
    21. Alberto Alesina & Vittorio Grilli & Gian Maria Milesi-Ferretti, 1993. "The Political Economy of Capital Controls," NBER Working Papers 4353, National Bureau of Economic Research, Inc.
    22. repec:bla:jfinan:v:43:y:1988:i:3:p:661-76 is not listed on IDEAS
    23. Hali J. Edison & Francis E. Warnock, 2004. "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 691-704, August.
    24. Mark Lang & Jana Smith Raedy & Michelle Higgins Yetman, 2003. "How Representative Are Firms That Are Cross‐Listed in the United States? An Analysis of Accounting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 41(2), pages 363-386, May.
    25. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
    26. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    27. Edison, Hali J. & Levine, Ross & Ricci, Luca & Slok, Torsten, 2002. "International financial integration and economic growth," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 749-776, November.
    28. Karolyi, G. Andrew, 2003. "DaimlerChrysler AG, the first truly global share," Journal of Corporate Finance, Elsevier, vol. 9(4), pages 409-430, September.
    29. Linda L. Tesar & Ingrid M. Werner, 1994. "International Equity Transactions and U.S. Portfolio Choice," NBER Chapters, in: The Internationalization of Equity Markets, pages 185-227, National Bureau of Economic Research, Inc.
    30. Leuz, Christian & Triantis, Alexander & Yue Wang, Tracy, 2008. "Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 181-208, August.
    31. Jeffrey A. Frankel, 1994. "The Internationalization of Equity Markets," NBER Books, National Bureau of Economic Research, Inc, number fran94-1.
    32. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "Capital Inflows to Latin America: The 1970s and 1990s," MPRA Paper 8196, University Library of Munich, Germany.
    33. Marco Pagano & Ailsa A. Röell & Josef Zechner, 2002. "The Geography of Equity Listing: Why Do Companies List Abroad?," Journal of Finance, American Finance Association, vol. 57(6), pages 2651-2694, December.
    34. Cavallo, Eduardo A. & Frankel, Jeffrey A., 2008. "Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1430-1452, December.
    35. Croushore, Dean & Stark, Tom, 2001. "A real-time data set for macroeconomists," Journal of Econometrics, Elsevier, vol. 105(1), pages 111-130, November.
    36. Valkanov, Rossen, 2003. "Long-horizon regressions: theoretical results and applications," Journal of Financial Economics, Elsevier, vol. 68(2), pages 201-232, May.
    37. John M. Griffin & Federico Nardari & René M. Stulz, 2004. "Are Daily Cross-Border Equity Flows Pushed or Pulled?," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 641-657, August.
    38. Lins, Karl V. & Strickland, Deon & Zenner, Marc, 2005. "Do Non-U.S. Firms Issue Equity on U.S. Stock Exchanges to Relax Capital Constraints?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 109-133, March.
    39. Tomas Dvorak, 2001. "Do Domestic Investors Have an Information Advantage? Evidence from Indonesia," Center for Development Economics 168, Department of Economics, Williams College.
    40. Black, Fischer, 1974. "International capital market equilibrium with investment barriers," Journal of Financial Economics, Elsevier, vol. 1(4), pages 337-352, December.
    41. Bekaert, Geert & Harvey, Campbell R, 1995. "Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    42. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    43. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
    44. Stark, Tom & Croushore, Dean, 2002. "Forecasting with a real-time data set for macroeconomists," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 507-531, December.
    45. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    46. Stephen R. Foerster & G. Andrew Karolyi, 1999. "The Effects of Market Segmentation and Investor Recognition on Asset Prices: Evidence from Foreign Stocks Listing in the United States," Journal of Finance, American Finance Association, vol. 54(3), pages 981-1013, June.
    47. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
    48. Stijn Claessens & Daniela Klingebiel & Sergio L. Schmukler, 2002. "The Future of Stock Exchanges in Emerging Economies: Evolution and Prosepcts," Center for Financial Institutions Working Papers 02-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
    49. Ross Levine, 2001. "International Financial Liberalization and Economic Growth," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 688-702, November.
    50. Richards, Anthony, 2005. "Big Fish in Small Ponds: The Trading Behavior and Price Impact of Foreign Investors in Asian Emerging Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 1-27, March.
    51. Quinn, Dennis, 1997. "The Correlates of Change in International Financial Regulation," American Political Science Review, Cambridge University Press, vol. 91(3), pages 531-551, September.
    52. Tomáš Dvořák, 2005. "Do Domestic Investors Have an Information Advantage? Evidence from Indonesia," Journal of Finance, American Finance Association, vol. 60(2), pages 817-839, April.
    53. Stulz, Rene M, 1981. "On the Effects of Barriers to International Investment," Journal of Finance, American Finance Association, vol. 36(4), pages 923-934, September.
    54. William L. Griever & Gary A. Lee & Francis E. Warnock, 2001. "The U.S. system for measuring cross-border investment in securities: a primer with a discussion of recent developments," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 87(Oct), pages 634-650, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hali J. Edison & Francis E. Warnock, 2003. "Cross-board listings, capital controls, and equity flows to emerging markets," International Finance Discussion Papers 770, Board of Governors of the Federal Reserve System (U.S.).
    2. Curcuru, Stephanie E. & Dvorak, Tomas & Warnock, Francis E., 2010. "Decomposing the U.S. external returns differential," Journal of International Economics, Elsevier, vol. 80(1), pages 22-32, January.
    3. Charles P. Thomas & Francis E. Warnock & Jon Wongswan, 2004. "The Performance of International Equity Portfolios," International Finance Discussion Papers 817, Board of Governors of the Federal Reserve System (U.S.).
    4. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    5. Hali J. Edison & Francis E. Warnock, 2004. "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 691-704, August.
    6. Kim, Kyungkeun & Lee, Dongwon, 2020. "Equity market integration and portfolio rebalancing," Journal of Banking & Finance, Elsevier, vol. 113(C).
    7. Karen K. Lewis, 2011. "Global Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 435-466, December.
    8. Thapa, Chandra & Poshakwale, Sunil S., 2012. "Country-specific equity market characteristics and foreign equity portfolio allocation," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 189-211.
    9. Garg, Reetika & Dua, Pami, 2014. "Foreign Portfolio Investment Flows to India: Determinants and Analysis," World Development, Elsevier, vol. 59(C), pages 16-28.
    10. Bekaert, G. & Harvey, C. R. & Lumsdaine, R. L., 2002. "The dynamics of emerging market equity flows," Journal of International Money and Finance, Elsevier, vol. 21(3), pages 295-350, June.
    11. Alderighi, Stefano & Cleary, Siobhan & Varanasi, Padmasai, 2019. "Do institutional factors influence cross-border portfolio equity flows? New evidence from emerging markets," Journal of International Money and Finance, Elsevier, vol. 99(C).
    12. Ephraim Clark & Konstantinos Kassimatis, 2013. "International equity flows, marginal conditional stochastic dominance and diversification," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 251-271, February.
    13. Bong‐Chan Kho & René M. Stulz & Francis E. Warnock, 2009. "Financial Globalization, Governance, and the Evolution of the Home Bias," Journal of Accounting Research, Wiley Blackwell, vol. 47(2), pages 597-635, May.
    14. Nicolas Coeurdacier & Hélène Rey, 2013. "Home Bias in Open Economy Financial Macroeconomics," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 63-115, March.
    15. Bailey, Warren & Andrew Karolyi, G. & Salva, Carolina, 2006. "The economic consequences of increased disclosure: Evidence from international cross-listings," Journal of Financial Economics, Elsevier, vol. 81(1), pages 175-213, July.
    16. Porras, Eva & Ülkü, Numan, 2015. "Foreigners’ trading and stock returns in Spain," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 111-126.
    17. Christian Leuz & Karl V. Lins & Francis E. Warnock, 2010. "Do Foreigners Invest Less in Poorly Governed Firms?," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 3245-3285, March.
    18. Monica Singhania & Neha Saini, 2018. "Determinants of FPI in Developed and Developing Countries," Global Business Review, International Management Institute, vol. 19(1), pages 187-213, February.
    19. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 2011. "What Segments Equity Markets?," The Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 3841-3890.
    20. Gonçalves, Walter & Eid, William, 2017. "Sophistication and price impact of foreign investors in the Brazilian stock market," Emerging Markets Review, Elsevier, vol. 33(C), pages 102-139.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:27:y:2008:i:6:p:1013-1027. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.