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Investor Panic, IMF Actions, and Emerging Stock Market Returns and Volatility

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Author Info

  • Bernd Hayo

    (University of Essen, ZEI, and Georgetown University)

  • Ali Kutan

    (Southern Illinois University and ZEI)

Abstract

In this paper, we examine the reaction of stock market returns and volatility in a diverse group of six emerging markets to a set of IMF events. In particular, we test within a panel framework whether there was an "investor panic" causing a significant drop in stock market returns on the days of negative IMF events. We find that on average negative (positive) IMF news reduce (increase) daily stock returns by about one percentage point. The most influential single event is the delay of loans from the IMF, which reduces stock returns by about one and a half percentage points. IMF news do not have a significant impact on the volatility of stock markets. Thus, it appears that IMF actions and events primarily have an effect on pay-offs but not on risk, and do not appear to support the hypothesis of IMF induced "investor panics".

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0112001.

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Length: 23 pages
Date of creation: 03 Dec 2001
Date of revision:
Handle: RePEc:wpa:wuwpif:0112001

Note: Type of Document - ; prepared on IBM PC; pages: 23 ; figures: included
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Web page: http://128.118.178.162

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Keywords: IMF news; stock market returns; emerging markets;

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  1. Engle, Robert F & Hendry, David F & Richard, Jean-Francois, 1979. "Exogeneity," The Warwick Economics Research Paper Series (TWERPS) 162, University of Warwick, Department of Economics.
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