Working Paper: NBER ID: w9343
Authors: Sebastian Auguste; Kathryn M. E. Dominguez; Herman Kamil; Linda L. Tesar
Abstract: 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 associated ADRs, while the same stocks in New York were mainly priced based on global factors, (4) capital outflow using the ADR market was substantial (our estimate is between $835 million and $3.4 billion)
Keywords: No keywords provided
JEL Codes: F32; F36; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corralito (E44) | increased ADR trading (G19) |
| market expectations (D84) | stock prices (G12) |
| local market factors (R33) | pricing of peso-denominated stocks (F31) |
| global factors (F69) | pricing of peso-denominated stocks in New York (F31) |
| corralito (E44) | capital outflow through ADR market (F21) |