Fool's Gold: On the Impact of Venezuelan Devaluations in Multinational Stock Prices

CID Research Fellow & Graduate Student Working Paper No. 83

Dany Bahar, Carlos Alberto Molina, and Miguel Angel Santos
May 2017 (Revised June 2018)


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 multinationals with Venezuelan subsidiaries. The results suggest evidence of statistically and economically significant negative CARs of up to 2.07% 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 predicaments of the efficient market hypothesis stating that predictable devaluations should not impact 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 suggestive indication of market inefficiencies in the process of asset pricing.

Keywords: devaluations, stock prices, market efficiency, event study, synthetic controls

JEL codes:  F31, G12, G14, G15

Affiliated Program: Growth Lab