The Impact of Expropriations on the Stock Prices of the Parent Companies: Sell on the Rumor, Buy on the News?

24 Pages Posted: 23 Aug 2016

See all articles by Diana Constanza Restrepo Ochoa

Diana Constanza Restrepo Ochoa

Escuela de Economía y Finanzas - Universidad Eafit; Universidad Carlos III de Madrid - Department of Business Administration

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: June 1, 2016

Abstract

We measure the impact of warnings of expropriation and of forced divestments of private property on the stock prices of the parent company. We use a unique database of 116 events in 12 countries from 2005 to 2013. Our results show significant negative effects on the stock prices of different kinds of warnings; the largest effect is when the warning takes the form of a transitory permit revocation. In the case of forced divestments, we find a significant negative impact when there is a permanent revocation of a permit. However, nationalizations seem to generate a positive market reaction.

Keywords: Expropriation risk, Nationalization, Event study, Stock Market

JEL Classification: G14, H13

Suggested Citation

Restrepo Ochoa, Diana Constanza and Peña, Juan Ignacio, The Impact of Expropriations on the Stock Prices of the Parent Companies: Sell on the Rumor, Buy on the News? (June 1, 2016). Center for Research in Economics and Finance (CIEF), Working Papers, 16-19 2016. Available at SSRN: https://ssrn.com/abstract=2827117 or http://dx.doi.org/10.2139/ssrn.2827117

Diana Constanza Restrepo Ochoa (Contact Author)

Escuela de Economía y Finanzas - Universidad Eafit ( email )

Carrera 49 N° 7 sur – 50
Medellín, Antioquia 00000
Colombia

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Juan Ignacio Peña

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain
34 91 624 9625 (Phone)
34 91 624 9608 (Fax)

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