The price of incorvertible deposits: the stock market boom during the Argentine crisis

Abstract

The Argentine crisis witnessed, among other things, a deposit run, the suspension of deposit convertibility, and a “boom” in the stock market. We argue that this boom reflects the cost that depositors were willing to incur to get their money out of the banking system, in light of the impending risks. This boom was generalized to all stocks and more pronounced in liquid stocks. Furthermore, the boom was a symptom that deposits were effectively restricted and that investors were not able to circumvent capital controls.