Market Imperfections, Capital Market Equilibrium and Corporation Finance

Stapleton, Richard C.; Subrahmanyam, M. G.

doi:10.2307/2326763

Cited by 221 publications

(104 citation statements)

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“…Our paper relates to the theoretical literature on capital controls, pioneered by Black (1974), Stapleton and Subrahmanyam (1977), and Stulz (1981), who show in a CAPM-type setup that a tax on foreign asset holdings leads to an investment home bias. Later, Errunza and Losq (1989) and Bergström, Rydqvist, and Sellin (1993), still in a static setup, show that investment barriers imply a premium for foreign assets and are welfare-deteriorating due to diversification losses.…”

Section: Non-technical Summarymentioning

confidence: 81%

Capital Controls and International Financial Stability: A Dynamic General Equilibrium Analysis in Incomplete Markets

Buss

2011

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Adrian BussINSEAD; e-mail: adrian.buss@insead.edu AbstractIn this paper, we conduct an analysis of the implications of capital controls for financial stability. We study a financial transaction (Tobin) tax applicable to cross-border capital flows in a multi-good, multi-country dynamic equilibrium model with incomplete financial markets and heterogeneous agents. The results derived from the model suggest that the impact of capital controls may vary considerably across market segments. In currency markets, capital controls reduce the volatility. However, in international stock markets, their introduction amplifies price movements, thus, increases the volatility; but it reduces a country's vulnerability to external shocks, thereby limiting spillover effects.Keywords: capital controls, financial transaction (Tobin) tax, financial stability, incomplete financial markets, general equilibrium JEL classification: F21, F31, G12, G15 Non-Technical SummaryCapital inflow controls, that is, instruments that aim to reduce capital flows into a country or into specific segments of a country's financial markets, have been used and advocated for some decades.For example, as a reaction to fast international capital flows, Tobin proposed to "throw some sand in the wheels" of the international financial markets and introduce capital controls. Lately However, as the empirical evidence for the effectiveness of capital controls is rather inconclusive and theoretical analyses have yielded mixed evidence, the use of capital controls was always accompanied by an intense debate. The objective of this paper is to assess the effectiveness of capital inflow controls and understand their multilateral implications in a dynamic model. Specifically, we want to understand through which channels capital inflow controls work and how effective they are, e.g., if they can reduce exchange rate or stock market volatility, limit the cross-border propagation of shocks or limit currency appreciations. Furthermore, we assess the adverse consequences of their imposition on foreign exchange and stock markets, as well as wealth and welfare.We therefore study a model of a full-information, international, dynamic stochastic general equilibrium economy with uncertainty generated by output as well as demand shocks where each country's financial market consists of a risk-free bond and a risky stock. In this model we characterize capital controls as a transaction tax o...

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Section: Non-technical Summarymentioning

confidence: 81%

Capital Controls and International Financial Stability: A Dynamic General Equilibrium Analysis in Incomplete Markets

Buss

2011

SSRN Journal

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“…Initial work in this area was carried on by Stapleton and Subrahmanyam (1977). They pointed out that cross-listing helped reduce the degree of segmentation, in the emerging markets, which in turn reduced the cost of capital and lead to the increase in the firm's value.…”

Section: Literature Reviewmentioning

confidence: 99%

The Effect of ADR & GDR Listing on Shareholder’s Wealth: Evidence from India

Chaturvedula¹

2018

AFR

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During the period January 2000 to December 2007, seventy nine companies raised capital through the ADR/GDR issues 99 times. This paper looks at the impact of ADR/GDR listing on shareholders wealth. Using an event study methodology and for the sample consisting of 13 ADR and 86 GDR listings the present study finds that ADR/GDR listing negatively effects shareholders wealth. The present study indicates that the potential drawbacks outweigh the benefits in international listing in Indian markets in the short run.

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“…Traditional arguments for cross-listing are predominantly based on barriers (e.g. market segmentation [Stapleton and Subrahmanyam (1977)] or informational barriers [Merton, 1987]), preference for better "quality" markets (e.g. improved liquidity [Amihud and Mendelson (1986)]; stronger investor protection [Stulz (1999) and Coffee (1999)];…”

Section: Background On Culture and Cross-listingmentioning

confidence: 99%