Exchange Rate Fluctuations, Political Risk, and Stock Returns: Some Evidence from an Emerging Market

JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, Volume 30 No. 4, December 1995

Posted: 4 Oct 1995

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance

Y. Peter Chung

University of California at Riverside

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Abstract

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 equity market premiums for exposure to these risks. The results suggest common factors in emerging market equity, currency, and sovereign debt markets, and have several implications for corporate and portfolio management and for the use of emerging market data by researchers.

JEL Classification: F31

Suggested Citation

Bailey, Warren B. and Chung, Y. Peter, Exchange Rate Fluctuations, Political Risk, and Stock Returns: Some Evidence from an Emerging Market. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, Volume 30 No. 4, December 1995. Available at SSRN: https://ssrn.com/abstract=6770

Warren B. Bailey (Contact Author)

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance ( email )

China

Y. Peter Chung

University of California at Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States
909-787-3906 (Phone)
909-787-2933 (Fax)

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