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

By Torbjorn I. Becker, Anthony J. Richards, Gaston Gelos

January 1, 2000

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Torbjorn I. Becker, Anthony J. Richards, and Gaston Gelos. Devaluation Expectations and the Stock Market: The Case of Mexico in 1994/95, (USA: International Monetary Fund, 2000) accessed September 18, 2024

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.

Subject: Exchange rate adjustments, Exchange rate arrangements, Exchange rates, Exports, Financial markets, Foreign exchange, International trade, Stock markets

Keywords: Abnormal returns, Asia and Pacific, Credibility of exchange rate regimes, Devaluation, Devaluation event-study methodology, Devaluation expectation, Event study, Exchange rate, Exchange rate adjustments, Exchange rate arrangements, Exchange rate elasticity, Exchange rate exposure, Exchange rate factor, Exchange rates, Exports, Leading crisis indicators, Mexican peso devaluations, Shadow exchange rate, Stock market, Stock markets, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/028
Stock No:

WPIEA0282000
ISBN:

9781451844658
ISSN:

1018-5941

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