The Response of the Mexican Equity Market to US Monetary Surprises

Ellis B. Heath and Seth J. Kopchak

Journal of Emerging Market Finance, 2015, vol. 14, issue 2, 87-111

Abstract: Controlling for the US stock market, we find that the reaction of the Indice de Precios y Cotizaciones (IPC) (Mexican equity market) to changes in the federal funds target rate is asymmetric and depends on the state of the Mexican economy. Specifically, Mexican equity markets, like US equity markets, suffer more during cyclical downturns when faced with US monetary surprises than during expansions. This result is important since it suggests that exogenous credit events in the US can affect Mexican equity markets and that the magnitude of the effect depends on the state of the Mexican economy; additionally, it shows that the credit channel theory applies across the US–Mexican border. While other studies have confirmed that US monetary surprises can affect the Mexican equity market, none have looked at this aspect as it relates to business cycles. JEL Classification: E52, F36, F42

Keywords: Monetary policy; stock market; business cycle; credit channel; Latin America (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:14:y:2015:i:2:p:87-111

DOI: 10.1177/0972652715584264

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