Contagion and Firms’ Internationalization in Latin America : Evidence from Mexico, Brazil, and Chile

The author investigates whether contagion matters when emerging market firms cross-list their stocks in a developed capital market. She develops a rational expectations model where financial markets are segmented along emerging markets' borders and contagion spreads from one emerging market to another through the actions of international investors rebalancing their portfolio using stocks cross-listed in the developed market. The author finds that contagion is a cost of internationalization as cross-listed stocks are more affected by contagion than pure domestic stocks. Furthermore, a welfare analysis of international cross-listing versus financial autarky suggests that the benefits of internationalization in terms of less information asymmetry and better market efficiency offset the costs of contagion. Her model is able to explain some transmission of the 1998 Brazilian crisis to Mexico and Chile.

Bibliographic Details

Main Author:	Sakho, Yaye Seynabou
Language:	English en_US
Published:	World Bank, Washington, DC 2006-12
Subjects:	ASSETS, ASYMMETRIC INFORMATION, CAPITAL MARKET, CAPITAL MARKETS, CONTAGION, CRISIS AFFECTED, DEMAND CURVE, DEMAND FUNCTIONS, DOMESTIC MARKET, EMERGING MARKET, EMERGING MARKETS, EQUILIBRIUM, EQUILIBRIUM PRICES, EXCESS DEMAND, EXPECTED RETURNS, EXTERNALITY, FINANCIAL CRISES, FINANCIAL INTERNATIONALIZATION, FINANCIAL MARKET, FINANCIAL MARKETS, FOREIGN INVESTORS, FOREIGN OWNERSHIP, FOREIGN SECURITIES, FUTURE RESEARCH, GLOBALIZATION, HEDGE FUNDS, INFORMATION ASYMMETRY, INSURANCE, INTEREST RATE, INTERNATIONAL CAPITAL MARKET, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL FIRMS, INTERNATIONAL INVESTORS, INVESTMENT BARRIERS, LIQUIDATION, LIQUIDITY, M1, M2, M3, MACROECONOMIC POLICY, MARKET INTEGRATION, MARKET PRICES, MARKET SEGMENTATION, MARKET TRANSPARENCY, MUTUAL FUNDS, PORTFOLIO, PORTFOLIOS, PRICE CHANGE, PRICE CHANGES, PRICE DECREASE, PRICE DECREASES, PRICE EFFECT, PRICES, RATE OF RETURN, RISK AVERSION, RISK EXPOSURE, SALE, SALES, SECURITIES MARKETS, SHORT SALES, SPREAD, STOCK PRICES, STOCKS, TRADERS, UTILITY FUNCTIONS, VOLATILITY, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2006/12/7245802/contagion-firms-internationalization-latin-america-evidence-mexico-brazil-chile https://hdl.handle.net/10986/8859
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