Effects of changes in the Icelandic capital controls: An event study on the stock price of Össur hf.

Abstract: The aim of the thesis is to examine whether changes in the capital controls affect the premium of the cross-listed stock of Össur hf., it is listed on the Icelandic and Copenhagen stock exchange. The price difference is examined with two currency rates, the official rate as given by the Central bank of Iceland and the offshore rate. The Icelandic market is bounded within capital controls, while the market in Denmark is not. From the introduction of the capital controls in 2008, they have been a subject of continuous change, and this study examines the effects of these changes on the premium between the Icelandic and Danish Össur stocks. The study uses a market model, adjusted for timevarying volatility, which contributes more concrete results. The results from the study indicate strongly, that the price differential is affected by the changes in the capital controls. Moreover, how the change is implemented is a key factor in the overall significance of the change.