Capital Controls and International Portfolio Theory

Download or read book Capital Controls and International Portfolio Theory written by Ms.Marjorie B. Rose and published by International Monetary Fund. This book was released on 1990-06-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effects of capital controls on asset prices. A closed-form valuation model by Eun and Janakirimanan (1986) is extended to analyze the impact of three restrictions on international portfolio investment: a percentage quantity constraint on the amount of foreign securities a domestic resident may hold in her portfolio; a constraint on the absolute amount of foreign securities a domestic resident may hold; and a percentage tax on the domestic purchase price of a foreign security. Comparative statics and numerical analysis are used to reveal the effects of these distortions on domestic and world equilibrium prices.