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Depositary Receipts, Country Funds, and the Peso Crash: The Intraday Evidence

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  • Warren Bailey
  • Kalok Chan
  • Y. Peter Chung

Abstract

We study the intraday impact of exchange rate news on emerging market American Depositary Receipts (ADRs) and closed‐end country funds during the 1994 Mexican peso crisis. Peso exchange‐rate changes affect prices and trading volumes of Latin American equities, and some closed‐end fund behavior is consistent with “noise trader” theories of small investors. However, there is no evidence that peso depreciation triggers a significant sell‐off of non‐Mexican securities or that other non‐Mexican trading patterns change at times of high peso news flow. Thus, the “Tequila Effect” is largely confined to price changes.

Suggested Citation

  • Warren Bailey & Kalok Chan & Y. Peter Chung, 2000. "Depositary Receipts, Country Funds, and the Peso Crash: The Intraday Evidence," Journal of Finance, American Finance Association, vol. 55(6), pages 2693-2717, December.
    • Handle: RePEc:bla:jfinan:v:55:y:2000:i:6:p:2693-2717
    DOI: 10.1111/0022-1082.00303
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