Devaluations and Emerging Stock Market Returns

22 Pages Posted: 25 Jun 2002

See all articles by Jack D. Glen

Jack D. Glen

International Finance Corporation (IFC)

Date Written: December 2001

Abstract

Stock returns over the two years surrounding 24 currency devaluations are examined. Using bootstrapped distributions, returns preceding the devaluation are shown to be significantly below normal, in both dollar and local currency terms. Most of the downturn, however, occurs well before the month of the devaluation. Returns following a devaluation are more normal. While industry and company specific effects appear to influence return behavior, only country effects and leverage levels are statistically significant. At the country level, both aggregate economic activity (GDP) and the size of the devaluation are important in explaining return behavior. The stock of foreign debt has little impact on returns. Finally, even though returns appear to anticipate devaluations, they are not statistically significant at predicting the size of the devaluation.

Keywords: Stock Returns, Devaluation, emerging markets

JEL Classification: G14, G15

Suggested Citation

Glen, Jack Dean, Devaluations and Emerging Stock Market Returns (December 2001). Available at SSRN: https://ssrn.com/abstract=315324 or http://dx.doi.org/10.2139/ssrn.315324

Jack Dean Glen (Contact Author)

International Finance Corporation (IFC) ( email )

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