Fool's gold: the impact of Venezuelan currency devaluations on multinational stock prices

Dany Bahar, Carlos A. Molina and Miguel Santos ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper documents negative cumulative abnormal returns (CARs) to five exchange rate devaluations in Venezuela within the context of stiff exchange controls and large black-market premiums, using daily stock prices for 110 multinational corporations with Venezuelan subsidiaries. The results suggest evidence of statistically and economically significant negative CARs of up to 2.07 percent over the ten-day event window. We find consistent results using synthetic controls to causally infer the effect of each devaluation on the stock prices of global firms active in the country at the time of the event. Our results are at odds with the predictions of the efficient market hypothesis stating that predictable devaluations should not affect the stock prices of large multinational companies on the day of the event, and even less so when they happen in small countries. We interpret these results as a suggestive indication of market inefficiencies in the process of asset pricing.

Keywords: devaluations; stock prices; market efficiency; event study; synthetic controls (search for similar items in EconPapers)
JEL-codes: F31 G12 G14 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2018-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Economía, 1, October, 2018, 19(1), pp. 93 - 128. ISSN: 1529-7470

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http://eprints.lse.ac.uk/123056/ Open access version. (application/pdf)

Related works:
Journal Article: Fool’s Gold: The Impact of Venezuelan Currency Devaluations on Multinational Stock Prices (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:123056

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