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Country Transparency and the Global Transmission of Financial Shocks

Luis Brandao Marques, R. Gaston Gelos and Natalia Melgar

No 2013/156, IMF Working Papers from International Monetary Fund

Abstract: This paper considers the role of country-level opacity (the lack of availability of information) in amplifying shocks emanating from financial centers. We provide a simple model where, in the presence of ambiguity (uncertainty about the probability distribution of returns), prices in emerging markets react more strongly to signals from the developed market, the more opaque the emerging market is. The second contribution is empirical evidence for bond and equity markets in line with this prediction. Increasing the availability of information about public policies, improving accounting standards, and enhancing legal frameworks can help reduce the unpleasant side effects of financial globalization.

Keywords: WP; financial market; country risk; dividend yield; U.S. dollar; transparency; emerging markets; transmission of global financial shocks; PWC opacity Index; government policies Index; PWC Opacity Index; sovereign bond index return; PWC opacity index; emerging market asset; PricewaterhouseCoopers' Opacity Index; market equilibrium condition; policies Index; country MSCI index; index return; equilibrium condition; Emerging and frontier financial markets; Stocks; Accounting standards; Bonds; Global (search for similar items in EconPapers)
Pages: 38
Date: 2013-07-03
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Journal Article: Country transparency and the global transmission of financial shocks (2018) Downloads
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Handle: RePEc:imf:imfwpa:2013/156