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Country fund discounts and the mexican crisis of December 1994: Did local residents turn pessimistic before international investors?

  • Jeffrey Frankel

    ()

  • Sergio Schmukler

    ()

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 investigates whether data from three Mexican country funds provide evidence that supports the “divergent expectations†hypothesis. We find that, right before the devaluation, Mexican fund Net Asset Values (mainly driven by Mexican investors) dropped first and/or 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. Copyright Kluwer Academic Publishers 1996

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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 7 (1996)
Issue (Month): 1 (March)
Pages: 511-534

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Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:511-534
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  1. Jeffrey A. Frankel, 1993. "The Internationalization of Equity Markets," NBER Working Papers 4590, National Bureau of Economic Research, Inc.
  2. Leonardo Leiderman & Carmen Reinhart & Guillermo Calvo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America; The Role of External Factors," IMF Working Papers 92/62, International Monetary Fund.
  3. Michael P. Dooley & Eduardo Fernandez-Arias & Kenneth M. Kletzer, 1994. "Recent Private Capital Inflows to Developing Countries: Is the Debt Crisis History?," NBER Working Papers 4792, National Bureau of Economic Research, Inc.
  4. 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.
  5. Jeffrey A. Frankel & Sergio L. Schmukler, 1998. "Country Funds and Asymmetric Information," International Finance 9805003, EconWPA.
  6. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank.
  7. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  8. Charles Lee & Andrei Shleifer & Richard Thaler, 1990. "Investor Sentiment and the Closed-End Fund Puzzle," NBER Working Papers 3465, National Bureau of Economic Research, Inc.
  9. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
  10. Charles Frederick Kramer & T. Todd Smith, 1995. "Recent Turmoil in Emerging Markets and the Behavior of Country-Fund Discounts; Renewing the Puzzle of the Pricing of Closed-End Mutual Funds," IMF Working Papers 95/68, International Monetary Fund.
  11. Robert Brandon Kahn & Adam Bennett & María Vicenta Carkovic S. & Susan Schadler, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 108, International Monetary Fund.
  12. Jeffrey A. Frankel., 1993. "Sterilization of Money Inflows: Difficult (Calvo) or Easy (Reisen)?," Center for International and Development Economics Research (CIDER) Working Papers C93-024, University of California at Berkeley.
  13. Claessens, S. & Gooptu, S., 1993. "Portfolio Investment in Developing Countries," World Bank - Discussion Papers 228, World Bank.
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