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Capital Controls and International Portfolio Theory: A Microeconomic Approach

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  • Ms. Marjorie B. Rose

Abstract

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.

Suggested Citation

  • Ms. Marjorie B. Rose, 1990. "Capital Controls and International Portfolio Theory: A Microeconomic Approach," IMF Working Papers 1990/051, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1990/051
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