Creative Commons

In theory the imposition of capital controls could increase the firms’ cost of capital , curb investment , and hence cause a drop in the share prices . Further, the credit constraints created by the imposition of capital controls are also more likely to be binding for firms that depend heavily on external rather on internal finance. This dissertation evaluates the effects of capital controls on the Cypriot stock market on two fronts . Particularly , the study examines, using monthly time - series data , the effects of capital controls on the market capitalization (its level, absolute, and percentage changes) of the Cypriot stock exchange. The study also, using daily data, looks at the effects of capital controls on the daily index value , actual returns , and cumulative returns, of the Cypriot stock market general index . The effect of capital controls is examined within the framework of event - study analysis, where the study’s “ event window ” is defined as the period under which the Cypriot economy was under the influence of capital controls, that is, over the period spanning from March 2013 to April 2015. The “estimation window” of the analysis runs for an equal number of months prior and after the period of capital controls. The empirical evidence do not point to any significant decline in cumulative abnormal returns for Cypriot stock market following the imposition of capital controls in March 2015, and for as long they remained in place . The general conclusion that can be derived from the study’s empirical findings is that that Cypriot stock exchange was largely unaf-fected by the imposition of capital controls.