Pessimistic foreign investors and turmoil in emerging markets : the case of Brazil in 2002
Andrade, Sandro C. and Kohlscheen, Emanuel (2010) Pessimistic foreign investors and turmoil in emerging markets : the case of Brazil in 2002. Working Paper. Coventry: University of Warwick. Dept. of Economics. Warwick economics research paper series (TWERPS), Vol.2010 (No.926).
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Using survey data, we document that foreign-owned institutions became more pessimistic than locally owned institutions about the strength of the Brazilian currency around the 2002 presidential elections. As a result of their relative pessimism, foreignowned institutions made larger forecast errors. Consistent with the emergence of their relative pessimism, foreign investors heavily sold Brazilian stocks and the Brazilian currency in futures markets ahead of the 2002 elections. Periods of stronger foreign sell-off were associated with larger equity price declines and larger depreciation of the Brazilian Real in spot and futures markets. These results are consistent with foreign investors’ lack of knowledge of Brazilian institutions contributing to the sharp depreciation of the Brazilian currency and stock market ahead of the 2002 presidential elections.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HC Economic History and Conditions|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Currency crises -- Brazil -- History -- 21st century, Investments, Foreign -- Brazil, Elections -- Brazil -- History -- 21st century, Business forecasting -- Brazil|
|Series Name:||Warwick economics research paper series (TWERPS)|
|Publisher:||University of Warwick. Dept. of Economics|
|Place of Publication:||Coventry|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Alesina, A. and G. Tabellini (1989) External debt, capital flight and political risk. Journal of
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