Devaluation Expectations and the Stock Market; The Case of Mexico in 1994/95
Torbjorn I. Becker,
Anthony Richards () and
R. Gaston Gelos ()
No 00/28, IMF Working Papers from International Monetary Fund
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.
Keywords: Exchange rate regimes; Economic models; Devaluation; Mexico; Stock markets; Stock market, Mexican peso devaluations, event study, exchange rate exposure, credibility of exchange rate regimes, leading crisis indicators, exchange rate, exchange rate expectations, exchange rates, exchange rate regime (search for similar items in EconPapers)
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