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Ms. Hali J Edison and Mr. Francis E. Warnock
We analyze capital flows to emerging markets in a framework that incorporates two quantitative measures of financial integration, the intensity of capital controls and the extent of cross border listings, while controlling for traditional global (push) and country specific (pull) factors. Two important results emerge. First, the cross listing of an emerging market firm on a U.S. exchange is an important but short lived capital flows event, suggesting that the cross listed stock is in effect a new security that U.S. investors quickly bring into their portfolios. Second, the effect of financial liberalization on capital flows is more nuanced than is suggested by event studies: A reduction in capital controls results in increased inflows only when the controls are binding. Among the standard push and pull factors, global factors are important-slack U.S. economic activity is associated with increased flows to emerging markets-and U.S. investors appear to chase expected, but not past, returns.
Goohoon Kwon and Mr. Raphael A Espinoza
This paper assesses the extent of regional financial integration in the Caribbean Community (CARICOM) by analyzing equity prices in the region and rigidity of external financing constraints. The results are presented in a cross-regional perspective. The Caribbean stock markets are not as well integrated as one would expect from the extent of cross-listing and importance of regional banking groups: price differentials of cross-listed stocks reach an average of 5 percent. Auto-Regressive models suggest that these price differentials are only slowly arbitraged away, with half-lives exceeding 7 worked days, even when looking only at large arbitrage opportunities (using a Threshold Auto-Regressive model). A speculative methodology using macroeconomic data seems to confirm these findings. A strong mean reversion of the current account (respectively regional trade imbalances) is interpreted, following Obstfeld and Taylor (2004), as a lack of ways to finance current account deficits, i.e. a lack of global (respectively regional) financial integration. The region appears to be much less integrated than the EU15 or the ASEAN+3 groups, although it fares well compared to other LDCs.
Ms. Hali J Edison and Mr. Francis E. Warnock

We analyze capital flows to emerging markets in a framework that incorporates two quantitative measures of financial integration, the intensity of capital controls and the extent of cross border listings, while controlling for traditional global (push) and country specific (pull) factors. Two important results emerge. First, the cross listing of an emerging market firm on a U.S. exchange is an important but short lived capital flows event, suggesting that the cross listed stock is in effect a new security that U.S. investors quickly bring into their portfolios. Second, the effect of financial liberalization on capital flows is more nuanced than is suggested by event studies: A reduction in capital controls results in increased inflows only when the controls are binding. Among the standard push and pull factors, global factors are important-slack U.S. economic activity is associated with increased flows to emerging markets-and U.S. investors appear to chase expected, but not past, returns.

Mr. Sanjaya P Panth, Mr. Paul Cashin, and Mr. W. A Bauer

Barriers to Regional Financial Integration Regional Supervision Issues Conclusion Appendix 2.1. The Dynamics of Cross-Listed Stock Prices Appendix 2.2. Current Account Dynamics and Financial Integration References 3 Tax Incentives and Foreign Direct Investment: Policy Implications for the Caribbean Luis Cubeddu, Andreas Bauer, Pelin Berkmen, Magda Kandil, Koffie Nassar, and Peter Mullins Background The Effectiveness of Tax Incentives The Efficiency of Tax Incentives Policy Implications Conclusions Appendix 3.1. Data Sources and

Olatundun Janet Adelegan
This paper examines the impact of regional cross-listing on stock prices. The sample consists of sub- Saharan African firms that have cross-listed during the period 1992-2008. Using event study methodology, the study finds positive abnormal returns around the date of the regional cross-listing of stocks. The positive announcement period effect, together with the normal post cross-listing performance, shows that regional cross-listing increases firm value. Overall, this provides evidence that firms benefit from listing outside their home market and need to be taken into consideration by SSA country authorities as they seek a regional approach to stock market development. Thus, policy makers of both the countries of primary listing (home country) and secondary listing (host country) need the right policy handles to conceptualize, facilitate and steer regional cross-listing efforts by firms. Through complementary policy-based efforts, policy makers can set the stage for regional cross-listings and harness the numerous related benefits.
Olatundun Janet Adelegan

Exchange, Kenya, one on the WAEMU Bourse Régionale des Valeurs Mobilières (BRVM), and one on the Nigerian Stock Exchange (see Table 2 ). The sample size comprises seven stocks according to data availability for all the relevant variables (see Table 2 and Appendix Table 6 ). This consists of: (i) two out of the three cross-listed stocks with primary listing on the stock market of Kenya and secondary listing in Uganda and Tanzania; (ii) one regionally cross-listed stock with primary listing on the WAEMU BRVM stock market and secondary listing in Nigeria and Ghana

International Monetary Fund
This study analyzes the impact of regional cross-listing of stocks on the depth of the stock markets in sub-Saharan Africa (SSA). It analyzes data from 1990 to 2007 for a panel of 13 stock markets in SSA countries, only some of which have regional cross-listings. Using event study methodology, the paper finds significant positive effects in measures of stock market depth around regional cross-listing events. Overall, growth in the regional crosslisting of stocks facilitates stock market deepening, and the stock markets of countries with regional cross-listings perform better than those without. The study thus suggests that SSA countries can benefit from putting in place the necessary conditions for promoting regional cross-listings and thereby deepening their stock markets. These include sound legal and regulatory frameworks, macroeconomic and political stability, harmonization of listing rules, accounting laws and disclosure requirements across the region, and strong money markets.
International Monetary Fund

event. The nonevent period is the start of the sample period until three months before the event window. The two-sided t-statistics of the changes in stock market development measure are computed around a five-month event window. The two-sided t-statistics test for the null hypothesis that the stock market does not react to regional cross-listings stock market events. Therefore, changes in stock market measure around the key dates are not statistically significant. The study investigates the aggregate impact of a regional cross-listing of stock on stock market

Mr. Raphael A Espinoza, Mr. Oral Williams, and Mr. Ananthakrishnan Prasad

S tocks A. Theory We estimate the size of ‘arbitrage opportunities’ in the GCC using cross-listed stock price data, i.e. price data of one equity listed in two different markets, and for which the noarbitrage condition is expected to hold. The no-arbitrage condition is a property satisfied by any equilibrium in absence of taxes, market segmentation or other market imperfections. In the presence of a transaction cost τ the arbitrage condition fails, but one can characterize the relationship between the price P 1 and P2 of the two equivalent assets thanks to

Andreas Bauer, Cashin Paul, and Mr. Sanjaya P Panth

efforts to strengthen oversight at the national level. Appendix 2.1. The Dynamics of Cross-Listed Stock Prices The cross-market premium for cross-listed stock prices is defined by p t = 100 ( E R t 1 S t 1 E R t 2 S t 2 − 1 ) where ER 1 and ER 2 are the exchange rates of country 1 and 2 (local currency per US$), and S 1 and S 2 are the stock prices in the regional markets, in local currency. The stock prices are transaction, rather than quoted, prices of a cross-listed stock at the end of each trading day. We have excluded the prices of a stock for