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

  • Jes�s Mu�oz

    (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)

Registered author(s):

    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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    File URL: http://hdl.handle.net/10.1002/jid.1220
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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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    1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
    2. Kathryn M.E Dominguez & Linda L. Tesar, 2001. "A Re-Examination of Exchange Rate Exposure," Working Papers 465, Research Seminar in International Economics, University of Michigan.
    3. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
    4. Ronald I. McKinnon & Huw Pill, 1998. "International Overborrowing: A Decomposition of Credit and Currency Risks," Working Papers 98004, Stanford University, Department of Economics.
    5. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-78, May.
    6. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers 7418, National Bureau of Economic Research, Inc.
    7. Martin Schneider & Aaron Tornell, 2004. "Balance Sheet Effects, Bailout Guarantees and Financial Crises," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 883-913, 07.
    8. Branson, William H. & Halttunen, Hannu & Masson, Paul, 1979. "Exchange rates in the short run : Some further results," European Economic Review, Elsevier, vol. 12(4), pages 395-402, October.
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