Exchange Rate Fluctuations, Political Risk, and Stock Returns: Some Evidence from an Emerging Market
Posted: 10 Oct 1994
Date Written: April 1994
We study the impact of exchange rate fluctuations and political risk on the risk premiums reflected in cross- sections of individual equity returns from Mexico, a country which has experienced significant monetary and political turbulence. Indicators from Mexico's currency and sovereign debt markets are employed as proxies for exchange rate and political risks. We find some evidence of unconditional and conditional equity premiums for exposure to these risks. The results highlight common factors in emerging market equity, currency, and sovereign debt markets, and have several implications for corporate and portfolio management.
JEL Classification: G12, G15, F31
Suggested Citation: Suggested Citation