Devaluation Expectations and the Stock Market : The Case of Mexico in 1994/95

Author/Editor:

Torbjorn I. Becker ; Anthony J. Richards ; R. G Gelos

Publication Date:

January 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Using company-level data, this paper examines the relative stock-market performance of firms with different foreign-exchange exposures around the time of the 1994/95 Mexican crisis. Contrary to what one might have expected given the alleged peso overvaluation, exporting firms outperformed the market beginning in late 1993. Although interest rates fail to show a clear confidence loss in the exchange rate regime, the relative performance of net exporters suggests that expectations of devaluation increased continuously. The methodology presented is relevant beyond the Mexican case: sectoral differences in stock market performance may constitute valuable leading indicators of exchange rate changes in emerging markets.

Series:

Working Paper No. 00/28

Subject:

English

Publication Date:

January 1, 2000

ISBN/ISSN:

9781451844658/1018-5941

Stock No:

WPIEA0282000

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

42

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