Crises, Contagion, and the Closed: End Country Fund Puzzle

Author/Editor:

Eduardo Levy Yeyati ; Angel J. Ubide

Publication Date:

September 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes the behavior of closed-end country fund discounts, including evidence from the Mexican and East Asian crises. We find that the ratio of fund prices to their fundamental value increases dramatically during a crisis, an anomaly that we denote the “closed-end country fund puzzle.” Our results show that the puzzle relates directly to the fact that international investors are less (more) sensitive to changes in local (global) market conditions than domestic investors. This asymmetry implies that foreign participation in local markets can both help dampen a crisis in the originating country, and amplify the contagion to noncrisis countries.

Series:

Working Paper No. 1998/143

Subject:

Asset prices Emerging and frontier financial markets Financial crises Financial institutions Financial markets Prices Stock markets Stocks

English

Publication Date:

September 1, 1998

ISBN/ISSN:

9781451856316/1018-5941

Stock No:

WPIEA1431998

Pages:

54

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