Investor Panic, IMF Actions, and Emerging Stock Market Returns and Volatility

ZEI Working Paper No. B01-27

31 Pages Posted: 8 Dec 2001  

Bernd Hayo

University of Marburg - School of Business & Economics

Ali M. Kutan

Southern Illinois University at Edwardsville

Date Written: November 2001

Abstract

In this paper, we examine the reaction of stock market returns and volatility in a diverse group of six emerging markets to a set of IMF events. In particular, we test within a panel framework whether there was an "investor panic" causing a significant drop in stock market returns on the days of negative IMF events. We find that on average negative (positive) IMF news reduce (increase) daily stock returns by about one percentage point. The most influential single event is the delay of loans from the IMF, which reduces stock returns by about one and a half percentage points. IMF news do not have a significant impact on the volatility of stock markets. Thus, it appears that IMF actions and events primarily have an effect on pay-offs but not on risk, and do not appear to support the hypothesis of IMF induced "investor panics".

Keywords: IMF news, stock market returns, emerging markets, financial markets

JEL Classification: F300, G100

Suggested Citation

Hayo, Bernd and Kutan, Ali M., Investor Panic, IMF Actions, and Emerging Stock Market Returns and Volatility (November 2001). ZEI Working Paper No. B01-27. Available at SSRN: https://ssrn.com/abstract=292823 or http://dx.doi.org/10.2139/ssrn.292823

Bernd Hayo (Contact Author)

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Ali M. Kutan

Southern Illinois University at Edwardsville ( email )

Department of Economics and Finance AH-3141
Edwardsville, IL 62026-1102
United States
618-650-3473 (Phone)
618-650-3047 (Fax)

HOME PAGE: http://https://ideas.repec.org/e/pku30.html

Paper statistics

Downloads
174
Rank
140,890
Abstract Views
1,169