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An empirical investigation of U.S. bank risk and the Mexican peso crisis

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  • Osman Kilic
  • M. Hassan
  • David Tufte

Abstract

This paper examines two pairs of hypotheses about the effect of the Mexican Peso crisis on U.S. bank stock returns. We use a three-index market model as our empirical methodology because bank stocks are influenced more by both interest rate risk and foreign exchange risk than other non-banking stocks. The results show that the market reacted to each event promptly, supporting semi-strong market efficiency. To find out whether these effects created a domino effect in the U.S. banking system, a set of cross-sectional regressions were run. In general, the empirical results support the investor-contagion hypothesis, which indicates that the market penalized or rewarded banks without regard to their ecposure to the market for Mexican loans. Copyright Springer 1998

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  • Osman Kilic & M. Hassan & David Tufte, 1998. "An empirical investigation of U.S. bank risk and the Mexican peso crisis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 22(2), pages 139-147, June.
    • Handle: RePEc:spr:jecfin:v:22:y:1998:i:2:p:139-147
    DOI: 10.1007/BF02771484
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    Cited by:

    1. Serrano, Alejandro, 2016. "Foreign banks and credit in Mexico," Global Finance Journal, Elsevier, vol. 30(C), pages 77-93.
    2. Bertrand Rime, 2003. "The Reaction of Swiss Banks' Stock Prices to the Russian Crisis," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(I), pages 101-124, March.
    3. Kilic, Osman & Hassan, M. Kabir & Tufte, David, 2000. "Market efficiency, the Mexican peso crisis, and the US bank stock returns: An application of the event parameter method," Global Finance Journal, Elsevier, vol. 11(1-2), pages 73-86.

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