Capital Controls and International Portfolio Theory: A Microeconomic Approach

Author/Editor:

Marjorie B. Rose

Publication Date:

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.

Series:

Working Paper No. 1990/051

Subject:

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

English

Publication Date:

June 1, 1990

ISBN/ISSN:

9781451970579/1018-5941

Stock No:

WPIEA0511990

Pages:

24

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