Abstract

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.

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Additional Information

ISSN
1533-6239
Print ISSN
1529-7470
Pages
pp. 93-128
Launched on MUSE
2018-11-15
Open Access
No
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