Endnotes

¹See Levine and Schmukler (2006 and 2007) and Gozzi, Levine, and Schmukler (2008a and 2008b), and the references therein.

²See Obstfeld (1994), Acemoglu and Zilibotti (1997), Fischer (1998), Rogoff (1999), and Summers (2000) for arguments in favor of financial integration.

³See Henry (2006) and Kose et al. (2006) for comprehensive surveys on the literature of financial integration. See Bhagwati (1998), Rodrik (1998), Soros (2002), and Stiglitz (2002) for arguments against financial integration.

⁴See Eichengreen et al. (1998), Cooper (1999), and Stiglitz (2000) for arguments against free capital flows. See Kawai and Takagi (2008) for a survey on the literature on managing capital inflows. Also, see Grenville (2008) for a discussion on the macroeconomic consequences of capital inflows and Schadler (2008) for an analysis of over 90 recent episodes of large capital inflows.

⁵See Edison and Reinhart (2001) for a detailed study of the case of Malaysia, and de la Torre, Levy Yeyati, and Schmukler (2003) and Perry and Servén (2003) for analyses of the case of Argentina.

⁶In 1991, Chile introduced unremunerated reserve requirements (URR) on capital inflows, the encaje, and was followed by Colombia in 1993, Thailand in 1995, and Argentina in 2005. In the midst of a fast appreciation of the Peruvian sol, Peru raised reserve requirements on bank deposits by offshore accounts to 120% in May 2008. Thailand has recently lifted controls in March of 2008. Le Fort and Lehmann (2003) and Cowan and De Gregorio (2005) study the Chilean case. In-depth analyses of the more recent episodes of controls on inflows are still missing.

⁷We study the effects of crises originated both domestically and abroad.

⁸Levy Yeyati, Schmukler, and Van Horen (2008b) document the liquidity decline during periods of financial distress.

⁹Depositary banks provide all the stock transfer and agency services in connection with a depositary receipt program, and must designate a custodian bank to accept deposits of ordinary shares. A custodian holds the ordinary shares underlying the ADRs in the issuer’s home market. When new ADRs are issued, the custodian accepts additional ordinary shares for safekeeping and when ADRs are canceled, the custodian releases the ordinary shares in accordance with instructions received from the depositary. Depositary banks are located in the US whereas the custodian bank is located in the home country of the underlying stock issuer.

¹⁰The same should apply to temporary non-zero premia due to differences in trading hours between the domestic and the US stock market.

¹¹For a detailed description of which companies are included in the respective portfolios and the period for which the cross-market premium is calculated, see Levy Yeyati, Schmukler, and Van Horen (2008a). In that paper, we also discuss the effects of using observations for which trading occurs in only one market.

¹²The sources for these measures are: Bloomberg, Clarin (newspaper, Argentina), IFC Emerging Markets Factbook, IMF Annual Report on Exchange Arrangements and Exchange Restrictions, Korea's Financial Supervisory Service's Regulation on Supervision of Securities Business, and Kaminsky and Schmukler (2008).

¹³In fact, the URR was set to zero, but the mechanism was left in place until it was finally eliminated in 2002.

¹⁴See Articles 7–9 of the Financial Supervisory Service’s Regulation on Supervision of Securities Business.

¹⁵The latter means purchasing South African assets listed in London with foreign currency and selling them in the Johannesburg stock market to obtain blocked rands in order to buy other South African securities.

¹⁶The “securities rand” was then traded in Johannesburg directly, making it unnecessary to obtain stocks through the London stock exchange.

¹⁷The financial rand applied to the local sale or redemption proceeds of South African securities and other investments in South Africa owned by non-residents, capital remittances by emigrants and immigrants, and approved outward capital transfers by residents.

¹⁸In some cases, the underlying stock or the DR trades very infrequently in either the pre- or post-event period, limiting the number of observations. When less than 15 observations are available to calculate the mean, the stock is not used in the event study.

¹⁹Note that Tables 2 and 4 show the average change of the mean across stocks (the cross-market premium mean difference is first calculated per stock and then averaged across stocks per country and event). Meanwhile, the figures display the change of the mean of the average cross-market premium (the crossmarket premium is first averaged across stocks per country and then the pre- and post-event mean difference is calculated). As a result, the mean change for each event differs slightly between the table and the figures.

²⁰The average cross-market premium equals 11.54 between December 2001 and May 2002 (the six-month period after the introduction of capital controls), compared to 2.33 between December 2002 and June 2003.

²¹Consider that although controls are in place, investors might find ways to shift funds in an out of the county. For example, in the case of controls on capital outflows, investors can purchase stocks or bonds domestically and sell them abroad. The cross-market premium reflects the implicit price investors pay for these transactions, among other things. See Levy Yeyati, Schmukler, and Van Horen (2008a).

²²See Levy Yeyati, Schmukler, and Van Horen (2008a).

²³To define crisis periods, Broner, Lorenzoni, and Schmukler (2004) use the 9-year bond spread, which is not readily available for all countries in our sample.

²⁴Ideally, one would also like to include the change in reserves; unfortunately, these data are not available on a daily frequency for the countries in our sample.

²⁵The following rates were used: seven-day interbank rate (Argentina), the bank deposit certificate rate (Brazil), the 30-day CD rate (Chile, Venezuela), the interbank call money rate (Indonesia, Korea, Russia), the 90-day bank deposit rate (Mexico), and the three-month discount rate (South Africa).

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