NBER Working Papers and Publications
|November 2002||Cross-Border Trading as a Mechanism for Capital Flight: ADRs and the Argentine Crisis|
with Kathryn M.E. Dominguez, Herman Kamil, Linda L. Tesar: w9343
This paper examines the surprising performance of the Argentine stock market in the midst of the country's most recent financial crisis and the role played by ADRs in Argentine capital flight. Although Argentine investors were subject to capital controls, they were able to purchase stocks with associated ADRs for pesos in Argentina, convert them into ADRs, re-sell them in New York for dollars and deposit the dollar proceeds in U.S. bank accounts. In the paper we show that: (1) ADR discounts went as high as 60% (indicating that Argentine investors were willing to pay significant amounts in order to legally move their funds abroad), (2) the market anticipated (correctly) a 40% devaluation, (3) local market factors in Argentina became more important in pricing peso denominated stocks with as...
Published: Journal of Monetary Economics, 53, 2006, 1259-1295