## 10. Korea—Capital Controls and Equity Flows

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---

### I. Introduction — context and purpose
- Net private capital flows to emerging market countries:
  - "tripled from $50 billion a year during 1987–89 to more than $150 billion a year over 1995–97."
- Equity flows:
  - In 1999, equities represented "34 percent of net inflows into Asia."
- Paper goal:
  - Explain drivers of volatile portfolio equity flows by synthesizing international financial integration (degree of financial liberalization and cross-border equity listings) and push-pull analysis (global "push" factors and local "pull" factors).
- Two integration variables introduced:
  - FOR: Edison and Warnock (2003a) measure of foreign ownership restrictions.
  - CBL: measure of cross-border listings.
- High-level empirical story:
  - Increased inflows when U.S. economic activity is weak, U.S. interest rates are low, binding capital controls are relaxed, prospective returns (dividend yields) increase, and when individual equities are cross-listed.

### II. Modeling framework and data
- Framework:
  - Augmented capital asset pricing setting with integration variables; desired portfolio weights equation: p = −γΩ−1ν + Ω−1η.
- Flows data:
  - Monthly bilateral portfolio equity flows from the United States to emerging market countries compiled by the U.S. Treasury International Capital (TIC) Reporting System.
  - Net purchases = gross purchases by U.S. residents from a country − gross sales by U.S. residents to that country.
- Dependent variable and regressions:
  - Y: average monthly U.S. net purchases of stocks in country i scaled by country i’s market capitalization, computed from t+1 to t+k where k = 12 (long-horizon) or k = 1 (short-horizon).
  - Main regression specification:
    - Yk,i,t = αi + β1 FORt + β2 CBLt+1 + β3 RISKt + β4 RETt + β5 DYt + β6 USBONDt + β7 USIPt + Σβj Ti + ηi,t,k
- Key explanatory variables (as defined):
  - RISKt: period t ICRG Composite Risk Index (logged)
  - RETt: period t returns relative to S&P500
  - DYt: period t dividend yield
  - CBLt+1: new exchange-traded cross-border listing in period t+1 (share of foreign market capitalization)
  - FORt: period t foreign ownership restrictions
  - USIPt: deviation of U.S. industrial production from a linear trend
  - USBONDt: interest rate on a 10-year U.S. Treasury bond
- FOR formula:
  - FORti = 1 − (PIFCI,ti / MCIFCI,ti) / (PIFCG,ti / MCIFCG,ti), FOR ∈ [0,1] where 0 = completely open, 1 = completely closed.
- CBL definition and example:
  - CBL = share of a country’s stock market newly listed on a U.S. exchange in a given month. Example: "BAESA was 2.3% of the Argentinian market when it listed on the NYSE in May 1993; in that month, CBL is 0.023 for Argentina."
- Sample and coverage:
  - Main regressions reported for "January 1989 to December 1999."
  - Long-horizon regressions use k = 12; short-horizon regressions use k = 1.
- Data caveats:
  - Coverage limited to flows involving U.S. residents; trades through third countries can cause geographical bias.
  - Cross-border stock swaps not included in TIC; "flowback" is included; stock swaps do not materially affect emerging markets sample per Table 2.

### III. Empirical findings — long-horizon (k = 12) and short-horizon (k = 1)
- Global push factors:
  - USIP (U.S. industrial production deviations):
    - "Above trend U.S. economic activity ... results in significantly lower equity flows to EMEs over the next year."
    - Example: "with U.S. industrial production running about 10 percent below trend in the early 1990s, long-horizon flows to Latin America and emerging Asia increased about 0.1 and 0.02 percent of market capitalization per month. Over a twelve-month period, these flows amount to 1.2 and 0.24 percent of market capitalization, respectively."
  - USBOND (U.S. interest rates):
    - Higher U.S. interest rates lead to reduced flows; significance varies across samples (significant in Asia ex Indonesia in panel results).
- Pull factors (returns and risk):
  - RET (lagged excess returns):
    - No evidence of past-returns chasing in long-horizon panel regressions (RET insignificant in every regression).
    - Some evidence of past-returns chasing in short-horizon regressions, at least in Latin America.
  - DY (dividend yield):
    - Prospective-returns chasing: higher dividend yields associated with greater inflows over the next year; significant in Asia ex Indonesia sample.
  - RISK (ICRG Composite Index, logged):
    - Not significant in panel long-horizon samples.
- Capital controls (FOR):
  - Long-horizon panel results:
    - "A reduction in capital controls results in a significant increase in long-horizon equity flows to emerging Asia, but not to Latin America."
  - Country-level long-horizon results:
    - "A reduction in capital controls leads to increased long-horizon flows to five of the nine countries."
    - Korea is an exception: reduced capital controls are associated with lower long-horizon inflows for Korea.
- Korea-specific findings:
  - A slight (one percentage point) loosening of restrictions at the end of 1994 resulted in an increase in inflows of about .004 percent of market capitalization per month (or .048 percent overall) over the subsequent 12-month period.
  - During the Asian financial crisis, Korea greatly relaxed non-binding capital controls and flows did not increase; during the crisis the coefficient estimate of FOR shoots toward zero.
  - Because controls were relaxed in very different environments over the entire sample, the measure of foreign ownership restrictions loses most of its significance by mid-1997.
  - The effect of changes in capital controls depends importantly on whether controls were binding; relaxations of non-binding controls are not associated with inflows.
- Cross-border listings (CBL):
  - Cross-listing generates a pronounced short-horizon spike:
    - Example magnitudes (month of listing): "a new ADR program by a firm that is ten percent of the home market raises equity inflows that month by 0.574 percent and 0.466 percent of market capitalization in Latin America and Asia, respectively."
  - Long-horizon persistence:
    - Much smaller or insignificant. Example: Latin America long-run effect: "only .0875 percent per month, or 1 percent over twelve months."
    - Conclusion: "Thus, most if not all of the effect of a cross-listing occurs in the month of the listing."
  - Cross-listing counts and distribution:
    - "Compared to 72 Latin American cross-listings, only 15 Asian firms cross-listed on U.S. exchanges in our sample, five of which are from Indonesia (and therefore excluded from the ex. Indonesia sample)."
  - Country-level interpretation:
    - Two interpretations: (i) flows associated with a cross-listing are purchases of the cross-listed firm; (ii) investors become more aware of the emerging market and reconsider all equities. Firm-level evidence (Edison and Warnock (2003b)) suggests the listing effect may be limited to the cross-listed firm.
- Rolling regressions and parameter stability:
  - Rolling 12-month-ahead regressions reveal parameter instability around crises:
    - Mexico: parameter estimates changed substantially around the 1994 Peso crisis.
    - Korea: significant changes during the Asian financial crisis.
  - Despite crisis-related shifts, many variable relationships are consistent through the sample.
  - Korea implemented a series of "small relaxations of foreign ownership restrictions in the 1990s, starting in 1992 ... culminating with a series of incremental reductions of restrictions from late 1994 to early ..." (text truncated in source).

### IV. Synthesis — principal conclusions
- Push factors matter:
  - Lower U.S. interest rates and below-trend U.S. industrial production are associated with increased equity inflows to emerging markets (quantified example: 10 percent below trend US IP → +0.1 and +0.02 percent market cap per month to Latin America and emerging Asia, respectively).
- Pull factors:
  - Investors chase prospective returns (dividend yields); past returns chasing is weak in long-horizon regressions and mixed in short-horizon results.
- Integration variables:
  - Relaxation of binding capital controls tends to increase inflows (significant for emerging Asia in panel results; mixed at country level with Korea as a noted counterexample).
  - Cross-border listings produce large, immediate inflow spikes in the month of listing (short-horizon), with little persistence in many cases (long-horizon).
- Data and inference limitations:
  - TIC data are U.S.-centric and subject to third-country intermediary distortions and valuation/coverage issues, though checks suggest reasonable accuracy for the sample countries (possible exception of Brazil).
  - Cross-listing effects measured as share of market capitalization (CBL); alternative measures (e.g., float) could alter magnitudes but were not available.

### V. Regression and robustness evidence (summary)
- Table 8 synthesis (signs and frequency of significance across regressions) — preserved signs and counts:
  - Long Horizon (Panel / Countries): RISK 0 / - 4/9 ; DY + 1/3 / + 5/9 ; RET 0 / + 1/9 ; FOR - 1/3 / - 5/9 ; CBLt+1 + 1/3 / + 2/7 ; USIP - 3/3 / - 8/9 ; USBOND - 1/3 / - 3/9.
  - Short Horizon (Panel / Countries): RISK + 1/3 / - 2/9 ; DY + 1/3 / + 2/9 ; RET + 1/3 / + 2/9 ; FOR - 2/3 / - 4/9 ; CBLt+1 + 2/3 / + 4/7 ; USIP - 3/3 / - 6/9 ; USBOND - 2/3 / - 2/9.
- Panel regressions highlight:
  - Significant negative coefficients on FOR in many Asia regressions (Tables 4a, 4b, 6, and 7).
  - Strong and consistent negative coefficients on USIP across panels and country regressions when significant.

### VI. Interpretation and policy-relevant implications
- Liberalization implications:
  - Only relaxations of binding controls generate significant inflow responses; policymakers should not expect increases in capital inflows when non-binding restrictions are relaxed.
- Cross-listing implications:
  - Cross-border listings on U.S. exchanges produce immediate funding for the firm involved but do not appear to generate widespread, sustained foreign buying across the broader domestic market.
  - If objective is to raise foreign capital for the broader market rather than a single firm, cross-listings alone may not achieve that goal.
- Global environment considerations:
  - Because USIP consistently affects flows, emerging market policymakers should consider global activity cycles when interpreting capital flow dynamics.
  - The correlation (0.51 in Latin America) between U.S. interest rates and foreign ownership controls suggests interactions between domestic policy choices and global financial conditions warrant careful analysis.

*Source: IMF Working Paper — chapter "10. Korea—Capital Controls and Equity Flows" (content unit provided).*

### References..............................................................................................................

### _wp03236 - References................................................................................................................................. 36

### Appendices
- A.  Description of Data and Sources......................................................................................... 40
- B.  Listings on U.S. Stock Exchanges ...................................................................................... 41

### Tables
- 1.   Capital Flow Data  .............................................................................................................. 17
- 2.   Net U.S. Purchases of Emerging Market Stocks ................................................................ 18
- 3.   Summary Statistics for Latin American Panel.................................................................... 19
- 4a. Panel Data Estimates of 12-Month Ahead Equity Flows ................................................... 20
- 4b. Panel Data Estimates of 12-Month Ahead Equity Flows (with first differences) .............. 21
- 5.   Estimation Results, 12-Month Ahead Equity Flows........................................................... 22
- 6.   Panel Data Estimates of One-Month Ahead Equity Flows................................................. 23
- 7.   Estimation Results, One-Month Ahead Equity Flows ........................................................ 24
- 8.   Summary of Results ............................................................................................................ 25

### Figures
- 1.   Monthly Net Purchases of Equities by U.S. Investors........................................................ 26
- 2.   U.S. Positions in Emerging Market Equities ...................................................................... 27
- 3.   Restrictions on Foreign Ownership of Equities .................................................................. 28
- 4.   New Listings of Emerging Market Stocks on U.S. Exchanges .......................................... 29
- 5.   Standard   Country-Specific (or “Pull”) Factors ................................................................... 30
- 6.   Global (or “Push”) Factors..................................................................................................31
- 7.   Fit of Long-Horizon Regressions, 1989–99........................................................................ 32
- 8.   Coefficient Estimates from Rolling Regressions—Mexico................................................ 33
- 9.   Coefficient Estimates from Rolling Regressions—Korea .................................................. 34

* _wp03236 - References.................................................................................................................*

### 10. Korea—Capital Controls and Equity Flows ....................................................................... 35

### 10. Korea—Capital Controls and Equity Flows

### I. Introduction — context and purpose
- Net private capital flows to emerging market countries:
  - "tripled from $50 billion a year during 1987–89 to more than $150 billion a year over 1995–97."
- Equity flows:
  - In 1999, equities represented "34 percent of net inflows into Asia."
- Paper goal:
  - Explain drivers of volatile portfolio equity flows by synthesizing:
    - international financial integration (degree of financial liberalization and cross-border equity listings), and
    - push-pull analysis (global "push" factors and local "pull" factors).
- Two integration variables introduced:
  - A quantitative measure of capital controls (Edison and Warnock (2003a) measure of foreign ownership restrictions, FOR).
  - A measure of cross-border listings (CBL).
- High-level empirical story reported:
  - Increased inflows when U.S. economic activity is weak, U.S. interest rates are low, binding capital controls are relaxed, prospective returns (dividend yields) increase, and when individual equities are cross-listed.

### II. Modeling framework and data
- Framework:
  - Augmented capital asset pricing setting with integration variables (capital controls and cross-border listings).
  - Desired portfolio weights equation (notation preserved): p = −γΩ−1ν + Ω−1η (equation (1) in source).
- Flows data:
  - Monthly bilateral portfolio equity flows from the United States to emerging market countries compiled by the U.S. Treasury International Capital (TIC) Reporting System.
  - Net purchases defined as gross purchases by U.S. residents from a country minus gross sales by U.S. residents to that country.
- Data caveats noted:
  - Coverage limited to flows that involve U.S. residents.
  - Trades through third countries can cause geographical bias.
  - Cross-border mergers financed by stock swaps are not included in TIC but "flowback" is; stock swaps do not materially affect the emerging markets sample per Table 2.
- Key empirical setup:
  - Dependent variable Y: average monthly U.S. net purchases of stocks in country i scaled by country i’s market capitalization, computed from t+1 to t+k where k = 12 (long-horizon) or k = 1 (short-horizon).
  - Main regression specification (preserved structure):
    - Yk,i,t = αi + β1 FORt + β2 CBLt+1 + β3 RISKt + β4 RE Tt + β5 DYt + β6 USBONDt + β7 USIPt + Σβj Ti + ηi,t,k
  - Country-specific explanatory variables (as defined in source):
    - RISKt: period t ICRG Composite Risk Index (logged)
    - RETt: period t returns relative to S&P500
    - DYt: period t dividend yield
    - CBLt+1: new exchange-traded cross-border listing in period t+1 (share of foreign market capitalization)
    - FORt: period t foreign ownership restrictions
  - U.S. (global push) factors:
    - USIPt: deviation of U.S. industrial production from a linear trend
    - USBONDt: interest rate on a 10-year U.S. Treasury bond
- Integration variable details:
  - FOR formula (preserved notation):
    - FORti = 1 − (PIFCI,ti / MCIFCI,ti) / (PIFCG,ti / MCIFCG,ti)  (equation (2) in source), with FOR ∈ [0,1] where 0 = completely open, 1 = completely closed.
  - CBL defined as the share of a country’s stock market newly listed on a U.S. exchange in a given month.
    - Example: "BAESA was 2.3% of the Argentinian market when it listed on the NYSE in May 1993; in that month, CBL is 0.023 for Argentina."
- Sample and time coverage:
  - Main regressions reported over the "January 1989 to December 1999 period."
  - Long-horizon regressions use k = 12 to smooth volatility and alleviate endogeneity concerns.
  - Short-horizon regressions use k = 1.

### III. Empirical findings — long-horizon (k = 12) and short-horizon (k = 1) results
- Global push factors:
  - U.S. industrial production (USIP):
    - "Above trend U.S. economic activity ... results in significantly lower equity flows to EMEs over the next year."
    - Quantified example: "with U.S. industrial production running about 10 percent below trend in the early 1990s, long-horizon flows to Latin America and emerging Asia increased about 0.1 and 0.02 percent of market capitalization per month. Over a twelve-month period, these flows amount to 1.2 and 0.24 percent of market capitalization, respectively."
  - U.S. interest rates (USBOND):
    - Higher U.S. interest rates lead to reduced flows; significance varies across samples (significant in Asia ex Indonesia in panel results).
- Pull factors (returns and risk):
  - RET (lagged excess returns):
    - No evidence of past-returns chasing in long-horizon panel regressions (RET insignificant in every regression).
    - Some evidence of past-returns chasing in short-horizon regressions, at least in Latin America.
  - DY (dividend yield):
    - Prospective-returns chasing: higher dividend yields are associated with greater inflows over the next year; significant in Asia ex Indonesia sample.
  - RISK (ICRG Composite Index, logged):
    - Not significant in panel long-horizon samples.
- Capital controls (FOR):
  - Long-horizon panel results:
    - "A reduction in capital controls results in a significant increase in long-horizon equity flows to emerging Asia, but not to Latin America."
  - Country-level long-horizon results:
    - "A reduction in capital controls leads to increased long-horizon flows to five of the nine countries."
    - Korea is an exception: reduced capital controls are associated with lower long-horizon inflows for Korea.
- Cross-border listings (CBL):
  - Cross-listing generates a pronounced short-horizon spike:
    - Short-horizon effect (month of listing): example magnitudes reported:
      - "a new ADR program by a firm that is ten percent of the home market raises equity inflows that month by 0.574 percent and 0.466 percent of market capitalization in Latin America and Asia, respectively."
    - Long-horizon persistence:
      - Much smaller or insignificant. Example:
        - Latin America long-run effect: "only .0875 percent per month, or 1 percent over twelve months."
      - Conclusion: "Thus, most if not all of the effect of a cross-listing occurs in the month of the listing."
  - Cross-listing counts and distribution:
    - "Compared to 72 Latin American cross-listings, only 15 Asian firms cross-listed on U.S. exchanges in our sample, five of which are from Indonesia (and therefore excluded from the ex. Indonesia sample)."
  - Cross-listing long-horizon significance:
    - Positive and significant long-horizon effect in Latin America but not in emerging Asia at the panel level; at country level, long-term effect significant in only two countries (Argentina and Chile) among seven with ADR programs.
- Comparative persistence and interpretation:
  - If coefficients are similar across long- and short-horizon regressions, short-horizon effects persist over the year; if the long-horizon coefficient is about one-twelfth the short-horizon coefficient, the effect is transitory (occurs in the listing month).
  - For CBL, the evidence points to a transitory, one-time portfolio rebalancing spike concentrated in the listing month.
- Rolling regressions and parameter stability:
  - Rolling 12-month-ahead regressions reveal parameter instability around crises:
    - Mexico: parameter estimates changed substantially around the 1994 Peso crisis.
    - Korea: significant changes during the Asian financial crisis.
  - Despite crisis-related shifts, many variable relationships are consistent through the sample.
  - Korea-specific observation:
    - Korea implemented a series of "small relaxations of foreign ownership restrictions in the 1990s, starting in 1992 ... culminating with a series of incremental reductions of restrictions from late 1994 to early ..." (text truncated in source at this point), which helps explain the atypical sign of FOR for Korea in long-horizon regressions.

### IV. Synthesis — principal conclusions
- Push factors matter:
  - Lower U.S. interest rates and below-trend U.S. industrial production are associated with increased equity inflows to emerging markets (quantified example: 10 percent below trend US IP → +0.1 and +0.02 percent market cap per month to Latin America and emerging Asia, respectively).
- Pull factors:
  - Investors chase prospective returns (dividend yields); past returns chasing is weak in long-horizon regressions and mixed in short-horizon results.
- Integration variables:
  - Relaxation of binding capital controls tends to increase inflows (significant for emerging Asia in panel results; mixed at country level with Korea as a noted counterexample).
  - Cross-border listings produce large, immediate inflow spikes in the month of listing (short-horizon), with little persistence in many cases (long-horizon).
- Data and inference limitations:
  - TIC data are U.S.-centric and subject to third-country intermediary distortions and valuation/coverage issues, though checks suggest reasonable accuracy for the sample countries (with possible exception of Brazil).
  - Cross-listing effects measured as share of market capitalization (CBL); alternative measures (e.g., float) could alter magnitudes but were not available.

*Source: IMF Working Paper — chapter "10. Korea—Capital Controls and Equity Flows" (content unit provided).*

### 1997. Over those periods, restrictions were binding and one would expect a relaxation to

### _wp03236 - 1997. Over those periods, restrictions were binding and one would expect a relaxation to

### Key empirical findings on capital controls and flows
- A slight (one percentage point) loosening of restrictions at the end of 1994 resulted in an increase in inflows of about .004 percent of market capitalization per month (or .048 percent overall) over the subsequent 12-month period.
- During the Asian financial crisis, Korea greatly relaxed non-binding capital controls and flows did not increase; during the crisis the coefficient estimate of FOR shoots toward zero.
- Because controls were relaxed in very different environments over the entire sample, the measure of foreign ownership restrictions loses most of its significance by mid-1997.
- The effect of changes in capital controls depends importantly on whether controls were binding; relaxations of non-binding controls are not associated with inflows.

### Integration variables: cross-listings (CBL) and foreign ownership restrictions (FOR)
- Cross-listing (CBL):
  - Portfolio rebalancing associated with the cross-listing of an emerging market equity on a U.S. exchange is a very important determinant of short-horizon flows (two of three in the panel and four of seven in country regressions).
  - The CBL effect is immediate but short-lived; when significant in long-horizon regressions, the CBL coefficient is of a much smaller magnitude.
  - With country-level flows data, two interpretations are considered: (i) flows associated with a cross-listing are purchases of the cross-listed firm; (ii) investors become more aware of the emerging market and reconsider all equities. Firm-level evidence (Edison and Warnock (2003b)) suggests the listing effect may be limited to the cross-listed firm.
- Foreign ownership restrictions (FOR):
  - Novel finding: an important role relationship between capital controls and capital flows.
  - Previous studies: Montiel and Reinhart (1999) found no link using annual dummy measures; Bekaert et al. (2002) find a post-liberalization increase in inflows of 1.4 percent per year; Edison and Warnock (2003a) show 1.9 percent for a full opening and 0.2 percent for a smaller (10 percent) opening.
  - This paper shows the effect depends on whether controls were binding; relaxations of non-binding controls are not associated with inflows.

### Global (“push”) and country-specific (“pull”) factors
- U.S./global factors:
  - U.S. industrial production is the single most frequently significant variable: significant in all three panel regressions for both long and short horizons, eight of nine long-horizon country-level regressions, and six of nine short-horizon country regressions. When significant, its coefficient is negative.
  - The authors find a greater effect for economic activity (USIP) than for U.S. interest rates (USBOND), which are not significant in the majority of regressions.
  - U.S. interest rates and foreign capital controls are highly correlated in the sample (0.51 in Latin America); if FOR is removed from regressions, US Bond becomes significant.
  - Conclusion: U.S. factors matter, but the exact role of U.S. interest rates is left for further work.
- Country-specific factors:
  - Evidence of chasing past returns is limited: investors chase past returns in only a few markets—one of nine in long-horizon regressions and two of nine in short-horizon regressions.
  - Much more evidence of chasing prospective returns proxied by dividend yields: five of nine in long-horizon regressions, consistent with Bekaert et al. (2002).

### Regression and robustness evidence (summary statements)
- Table 8 synthesis (signs and frequency of significance across regressions):
  - Long Horizon (Panel / Countries): RISK 0 / - 4/9 ; DY + 1/3 / + 5/9 ; RET 0 / + 1/9 ; FOR - 1/3 / - 5/9 ; CBLt+1 + 1/3 / + 2/7 ; USIP - 3/3 / - 8/9 ; USBOND - 1/3 / - 3/9.
  - Short Horizon (Panel / Countries): RISK + 1/3 / - 2/9 ; DY + 1/3 / + 2/9 ; RET + 1/3 / + 2/9 ; FOR - 2/3 / - 4/9 ; CBLt+1 + 2/3 / + 4/7 ; USIP - 3/3 / - 6/9 ; USBOND - 2/3 / - 2/9.
- Panel regressions (12-month and 1-month horizons) highlight:
  - Significant negative coefficients on FOR in many Asia regressions (examples preserved in Tables 4a, 4b, 6, and 7).
  - Strong and consistent negative coefficients on USIP (U.S. industrial production deviations) across panels and country regressions when significant.

### Interpretation and policy-relevant implications
- Liberalization implications:
  - Analyses of liberalizations (by design studies of the relaxation of binding controls) can show post-liberalization inflow increases; however, the current results imply that only relaxations of binding controls generate significant inflow responses.
  - Policymakers should not expect increases in capital inflows when non-binding restrictions are relaxed.
- Cross-listing implications:
  - Cross-border listings on U.S. exchanges produce immediate funding for the firm involved but do not appear to generate widespread, sustained foreign buying across the broader domestic market.
  - If the objective is to raise foreign capital for the broader market rather than a single firm, cross-listings alone may not achieve that goal.
- Global environment considerations:
  - Because U.S. economic activity (USIP) consistently affects flows, emerging market policymakers should consider global activity cycles when interpreting capital flow dynamics.
  - The correlation (0.51 in Latin America) between U.S. interest rates and foreign ownership controls suggests interactions between domestic policy choices and global financial conditions that warrant careful analysis.

### Conclusion (paper’s stated conclusions)
- The paper models portfolio equity flows to emerging markets using two new integration variables (intensity of capital controls and cross-border listings) along with standard global and country-specific factors.
- Two main departures from previous work:
  - The effects of changes in capital controls on capital flows depend on whether controls were binding.
  - Documentation of the immediate but short-lived effect of cross-border listings on capital flows to emerging markets.
- With country-level flows data, the authors conjecture the cross-listing related flows may be purchases of the cross-listed firm; firm-level evidence suggests the listing effect may be limited to the cross-listed firm and not extend to other firms in the country.

*Source: _wp03236 - 1997. Over those periods, restrictions were binding and one would expect a relaxation to*

### References

### _wp03236 - References

### References (selected)
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- Alesina, A., V. Grilli, and G.M. Milesi-Ferretti, 1994, “The Political Economy of Capital Controls,” in L. Leiderman and A. Razin, Capital Mobility: The Impact on Consumption, Investment and Growth (Cambridge: Cambridge University Press).
- Bacchetta, P., and E. van Wincoop, 2000, “Capital Flows to Emerging Markets: Liberalization, Overshooting, and Volatility,” in Capital Flows and the Emerging Economies, ed. by S. Edwards (Chicago: University of Chicago Press).
- Bekaert, G., and C.R. Harvey, 1995, “Time-Varying World Market Integration,” Journal of Finance, Vol. 50, pp. 403–44.
- Bekaert, G., C.R. Harvey and R. Lumsdaine, 2002, “The Dynamics of Emerging Market Equity Flows,” Journal of International Money and Finance, Vol. 21, pp. 295–350.
- Bohn, H., and L. Tesar, 1996, “U.S. Equity Investment in Foreign Markets: Portfolio Rebalancing or Returns Chasing?” American Economic Review, Vol. 86, pp. 77–81.
- Brennan, M., and H. Cao, 1997, “International Portfolio Flows,” Journal of Finance, Vol. 52, pp. 1851–80.
- Calvo, G., L. Leiderman, and C. Reinhart, 1993, “Capital Inflows to Latin America: The Role of External Factors,” IMF Staff Papers, Vol. 40, pp. 108–51.
- Campbell, J.Y., A.W. Lo, and A.C. McKinlay, 1997, “The Econometrics of Financial Markets” (Princeton, New Jersey: Princeton University Press).
- Campbell, J.Y., and R. Shiller, 1988, “Stock Prices, Earnings, and Expected Dividends,” Journal of Finance, Vol. 43, pp. 661–76.
- Choe, H., B.-C. Kho, and R. Stulz, 1999, “Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997,” Journal of Financial Economics, Vol. 54, pp. 227–64.
- Chuhan, P., S. Claessens, and N. Mamingi, 1998, “Equity and Bond flows to Latin America and Asia: The Role of Global and Country Factors,” Journal of Development Economics, Vol. 55, pp. 439–63.
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### Appendix A — Description of Data and Sources
- Equity flows from the U.S. to emerging markets are from the Treasury International Capital Reporting System (TIC), available at http://www.treas.gov/tic/.
- The CBL variable is formed using data on the worldwide market capitalization of foreign firms listed on U.S. exchanges, taken mainly from the NYSE, with NYSE data for year-end 1990, 1993, and 1996-1999. The Bank of New York’s ADR Index is available only from September 1998 onward.
- For firms listed in intermediate years, CompuStat data were used when they matched well with overlapping NYSE data. For firms where CompuStat data did not match overlapping NYSE data, the first available NYSE data point and changes in CompuStat market capitalization figures were used to form an estimate.
- Country-level market capitalization data are from IFC/S&P Emerging Stock Markets Factbooks, various years.
- The measure of foreign ownership restrictions uses monthly price and market capitalization data for the IFC/S&P Investable and Global Indexes. (See Edison and Warnock (2003a) for a complete discussion.)
- Equity returns are from Morgan Stanley MSCI indexes (www.mscidata.com).
- Dividend yields, from the IFC, are a 12-month moving average of dividends divided by the current price level.
- The risk measure is the International Country Risk Guide’s (ICRG) Composite Index; see Erb, Harvey, and Viskanta (1996).
- U.S. industrial production and the U.S. interest rate on a medium-term U.S. bond are from the IMF’s IFS data set.
- Countries included in panel regressions are the same as in single-country regressions and include Argentina, Brazil, Chile, and Mexico (for Latin America) and Indonesia, Korea, Malaysia, Philippines, and Thailand (for emerging Asia).

### Appendix B — Listings on U.S. Stock Exchanges (sample entries and structure)
- Appendix B lists country, symbol, company, date listed, and size (firm’s size relative to the country’s market capitalization, calculated by the authors using year-end values). Settlement conventions note that listings on the last three to five trading days of a month appear in the following month’s capital flow data. No firms from Malaysia or Thailand listed on a U.S. exchange between 1988 and 1999.
- Selected entries (as presented):
  - Argentina: YPF — YPF — 6/29/93 — 20.8%
  - Argentina: TA R — TELEFONICA DE ARGENTINA — 3/8/94 — 16.9%
  - Brazil: TBR — TELEC BRASILEIRAS — 11/1/95 — 9.9%
  - Brazil: SID — Companhia Siderurgica Nacional (CSN) — 11/14/97 — 7.0%
  - Chile: EOC — EMP NAC ELECTRICID — 7/24/94 — 10.2%
  - Chile: CTC — Cia. De Telefonos de Chile — 7/20/90 — 5.4%
  - Mexico: TMX — Telefonos de Mex. — 5/14/91 — 8.1%
  - Mexico: CX — Cemex — 9/15/99 — 13.1%
  - Indonesia: TLK — TELEKOMUNIKASI IND — 11/14/95 — 17.7%
  - Indonesia: IIT — INDOSAT — 10/18/94 — 7.8%
  - Korea: KEP — KOREA ELEC POWER — 10/27/94 — 10.7%
  - Korea: KTC — Korea Telcom Corp. — 5/26/99 — 11.0%
  - Philippines: PHI — PHILIPPINE LNG DIS — 10/19/94 — 5.3%
- Notes: All listings are on the NYSE unless otherwise noted. Size refers to firm’s size relative to the country’s market capitalization. Settlement conventions and the absence of Malaysian and Thai U.S. listings between 1988 and 1999 are documented.

*Content derived from the PDF: _wp03236 - References*

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