Floating without flotations-the exchange rate and the Mexican stock market: 1995-2001

Jesús Muñoz and P. Nicholas Snowden
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Jesús Muñoz: Instituto de Investigaciones Económicas y Empresariales (ININEE), Universidad Michoacana de San Nicolás de Hidalgo, Michoacán, México, Postal: Instituto de Investigaciones Económicas y Empresariales (ININEE), Universidad Michoacana de San Nicolás de Hidalgo, Michoacán, México
P. Nicholas Snowden: Department of Economics, Lancaster University Management School, Lancaster, UK, Postal: Department of Economics, Lancaster University Management School, Lancaster, UK

Journal of International Development, 2006, vol. 18, issue 3, 299-318

Abstract: Pegged exchange rates in capital importing countries partially 'socialised' the risks of international borrowing. A corollary of managed floating, therefore, is a reallocation of risk bearing to private capital markets. Equity finance offers explicit risk sharing but Mexican experience since 1995 confirms that it may not expand spontaneously under a floating regime, despite buoyant international conditions. As an explanation for this disappointing outcome, the analysis highlights the implications of managed floating for equity demand when corporate debt is high. Policy must recognize that while firms need to reduce gearing, investors may not be attracted to the shares of indebted companies. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jintdv:v:18:y:2006:i:3:p:299-318

DOI: 10.1002/jid.1220

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