Depositary Receipts, Country Funds, and the Peso Crash: The Intraday Evidence


  • Warren Bailey,

  • Kalok Chan,

  • Y. Peter Chung

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    • Bailey is from Cornell University, Chan is from Hong Kong University of Science and Technology, and Chung is from University of California, Riverside. We are grateful to Robert Devane, Wayne Ferson, Eric Jacquier, Andrew Karolyi, Ananth Madhavan, Michael Melvin, René Stulz, William J. Yohana, two anonymous referees, and seminar participants at the 9th Annual Pacific Basin Finance Conference and the City University of Hong Kong for helpful discussions, comments, and other assistance.


We study the intraday impact of exchange rate news on emerging market American Depositary Receipts (ADRs) and closed-end country funds during the 1994 Mexican peso crisis. Peso exchange-rate changes affect prices and trading volumes of Latin American equities, and some closed-end fund behavior is consistent with “noise trader” theories of small investors. However, there is no evidence that peso depreciation triggers a significant sell-off of non-Mexican securities or that other non-Mexican trading patterns change at times of high peso news flow. Thus, the “Tequila Effect” is largely confined to price changes.