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International Finance Discussion Papers: Country Fund Discounts and the Mexican Crisis of December 1994: Did Local Residents Turn Pessimistic before International Investors

It has been suggested that Mexican investors were the “front-runners” in the peso crisis of December 1994, turning pessimistic before international investors. Different expectations about their own economy, perhaps due to asymmetric information, prompted Mexican investors to be the first ones to leave the country. This paper investigates whether data from three Mexican country funds provide evidence that supports the “divergent expectations” hypothesis. We find that, right before the devaluation, Mexican country fund Net Asset Values (driven mainly by Mexican investors) dropped faster than their prices (driven mainly by foreign investors). Moreover, we find that Mexican NAVs tend to Granger-cause the country fund prices. This suggests that causality, in some sense, flows from the Mexico City investor community to the Wall Street investor community.

Author: Jeffrey A. Frankel, Sergio L. Schmukler,

Binding: Paperback

EAN: 9781288733996

Condition: New

Manufacturer: BiblioGov

Number of items: 1

Number of pages: 48

Product group: Book

Studio: BiblioGov

Publication Date: 2013-02-08

Publisher: BiblioGov

Pages: 48

ISBN: 1288733992

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Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.