Cross-Border Trading as a Mechanism for Capital Flight: Adrs and the Argentine Crisis

42 Pages Posted: 24 Jan 2007 Last revised: 30 Oct 2010

See all articles by Sebastian Auguste

Sebastian Auguste

University of Michigan at Ann Arbor - Department of Economics

Kathryn M.E. Dominguez

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER)

Herman Kamil

University of Michigan at Ann Arbor - Department of Economics

Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2002

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)

Suggested Citation

Auguste, Sebastian and Dominguez, Kathryn M.E. and Kamil, Herman and Tesar, Linda L., Cross-Border Trading as a Mechanism for Capital Flight: Adrs and the Argentine Crisis (November 2002). NBER Working Paper No. w9343. Available at SSRN: https://ssrn.com/abstract=351435

Sebastian Auguste

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Kathryn M.E. Dominguez (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

Lorch Hall
Ann Arbor, MI 48109
United States
313-764-3490 (Phone)
734-763-9181 (Fax)

HOME PAGE: http://www-personal.umich.edu/~kathrynd/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Herman Kamil

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Linda L. Tesar

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-763-2254 (Phone)
734-764-2769 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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