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

September 1, 1998

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Eduardo Levy Yeyati, and Angel J. Ubide Crises, Contagion, and the Closed: End Country Fund Puzzle, (USA: International Monetary Fund, 1998) accessed December 26, 2024

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.

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

Keywords: Africa, Asia and Pacific, Asset prices, Behavior of country fund prices vis-a-vis, Closed-end country fund puzzle, Contagion, Country fund prices vis-a-vis, Country fund puzzle, Country funds, Discount variability, Emerging and frontier financial markets, Europe, Exchange rate, Financial crisis, Fund discount, Fund market, Fund price, Fund price index, Global, Growth fund, Market index, Share price, Stock markets, Stocks, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/143
Stock No:

WPIEA1431998
ISBN:

9781451856316
ISSN:

1018-5941

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