Devaluation Expectations and the Stock Market: The Case of Mexico in 1994/95
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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.
Series:
Working Paper No. 2000/028
Subject:
Exchange rate adjustments Exchange rate arrangements Exchange rates Exports Financial markets Foreign exchange International trade Stock markets
English
Publication Date:
January 1, 2000
ISBN/ISSN:
9781451844658/1018-5941
Stock No:
WPIEA0282000
Pages:
42
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