Country Fund Discounts, Asymmetric Information and the Mexican Crisis of 1994: Did Local Residents Turn Pessimistic Before International Investors? / Jeffrey A. Frankel, Sergio L. Schmukler.

Format:

Book

Author/Creator:

Frankel, Jeffrey A.

Contributor:

National Bureau of Economic Research.

Schmukler, Sergio L.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5714.

NBER working paper series no. w5714

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Country Fund Discounts, Asymmetric Information and the Mexican Crisis of 1994

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

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.

Notes:

Print version record

August 1996.