Capital Controls and International Portfolio Theory: A Microeconomic Approach

June 1, 1990

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 examines the effects of capital controls on asset prices. A closed-form valuation model by Eun and Janakirimanan (1986) is extended to analyze the impact of three restrictions on international portfolio investment: a percentage quantity constraint on the amount of foreign securities a domestic resident may hold in her portfolio; a constraint on the absolute amount of foreign securities a domestic resident may hold; and a percentage tax on the domestic purchase price of a foreign security. Comparative statics and numerical analysis are used to reveal the effects of these distortions on domestic and world equilibrium prices.

Subject: Asset prices, Balance of payments, Capital markets, External position, Financial institutions, Financial markets, Foreign assets, Foreign direct investment, Prices, Securities

Keywords: Asset prices, Capital markets, choice problem, Foreign assets, Foreign direct investment, foreign securities, information cost, percentage portfolio constraint, Securities, securities result, security demand, WP

Pages:
24
Volume:
1990
DOI:
https://doi.org/10.5089/9781451970579.001
Issue:
051
Series:
Working Paper No. 1990/051
Stock No:
WPIEA0511990
ISBN:
9781451970579
ISSN:
1018-5941

Loading component...

IMF’s Work

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

Loading component...

IMF Working Papers