Contagion and Firms' Internationalization in Latin America: Evidence from Mexico, Brazil, and Chile

54 Pages Posted: 20 Apr 2016

Date Written: December 2006

Abstract

The author investigates whether contagion matters when emerging market firms cross-list their stocks in a developed capital market. She develops a rational expectations model where financial markets are segmented along emerging markets' borders and contagion spreads from one emerging market to another through the actions of international investors rebalancing their portfolio using stocks cross-listed in the developed market. The author finds that contagion is a cost of internationalization as cross-listed stocks are more affected by contagion than pure domestic stocks. Furthermore, a welfare analysis of international cross-listing versus financial autarky suggests that the benefits of internationalization in terms of less information asymmetry and better market efficiency offset the costs of contagion. Her model is able to explain some transmission of the 1998 Brazilian crisis to Mexico and Chile.

Keywords: Markets and Market Access, Investment and Investment Climate, Access to Markets, Financial Intermediation, Economic Theory & Research

Suggested Citation

Sakho, Yaye Seynabou, Contagion and Firms' Internationalization in Latin America: Evidence from Mexico, Brazil, and Chile (December 2006). World Bank Policy Research Working Paper No. 4076, Available at SSRN: https://ssrn.com/abstract=950131

Yaye Seynabou Sakho (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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