Fool's gold: the impact of Venezuelan currency devaluations on multinational stock prices

Bahar, Dany, Molina, Carlos A. and Santos, Miguel Angel (2018) Fool's gold: the impact of Venezuelan currency devaluations on multinational stock prices. Economía, 19 (1). 93 - 128. ISSN 1529-7470

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Abstract

This paper documents negative cumulative abnormal returns (CARs) to five exchange rate devaluations in Venezuela within the context of stiff exchange controls and large black-market premiums, using daily stock prices for 110 multinational corporations with Venezuelan subsidiaries. The results suggest evidence of statistically and economically significant negative CARs of up to 2.07 percent over the ten-day event window. We find consistent results using synthetic controls to causally infer the effect of each devaluation on the stock prices of global firms active in the country at the time of the event. Our results are at odds with the predictions of the efficient market hypothesis stating that predictable devaluations should not affect the stock prices of large multinational companies on the day of the event, and even less so when they happen in small countries. We interpret these results as a suggestive indication of market inefficiencies in the process of asset pricing.

Item Type:	Article
Official URL:	https://economia.lse.ac.uk/
Additional Information:	© 2018 LACTEA
Divisions:	LSE
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	F - International Economics > F3 - International Finance > F31 - Foreign Exchange G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
Date Deposited:	09 Jul 2024 15:06
Last Modified:	14 Sep 2024 10:00
URI:	http://eprints.lse.ac.uk/id/eprint/123056

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