It has been suggested that Mexican investors were the front-runners in the peso crisis of December 1994, turning pessimistic before international investors. Different expectations about their own economy, perhaps due to asymmetric information, prompted Mexican investors to be the first ones to leave the country. This paper uses data from three Mexican country funds to investigate the hypothesis of divergent expectations. We find that, right before the devaluation, Mexican fund Net Asset Values (mainly driven by Mexican investors) dropped faster than Mexican country fund prices (mainly driven by foreign investors). Moreover, we find that Mexican NAVs tend to Granger-cause the country fund prices. This suggests that causality, in some sense, flows from the Mexico City investor community to the Wall Street investor community. More generally, the paper proposes an asymmetric information approach that differs from the existing explanations of country fund discounts.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5714.
Length: Date of creation: Aug 1996 Date of revision: Handle: RePEc:nbr:nberwo:5714
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Find related papers by JEL classification: F30 - International Economics - - International Finance - - - General G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990.
"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 703-38, August.
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Gikas Hardouvelis & Rafael La Porta & Thierry A. Wizman, 1994.
"What Moves the Discount on Country Equity Funds?,"
NBER Chapters,
in: The Internationalization of Equity Markets, pages 345-403
National Bureau of Economic Research, Inc.
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