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

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

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Jesús Muñoz (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)

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.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 18 (2006)
Issue (Month): 3 ()
Pages: 299-318
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Handle: RePEc:wly:jintdv:v:18:y:2006:i:3:p:299-318

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Other versions:
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Other versions:
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Other versions:
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