One of the most precious goods in markets, for investors, is undoubtedly the information. Therefore, when there are information friction in financial markets, especially in emerging economies, they can lead to less informed investors, or with a lower knowledge of the foundations of a country, react in form Exaggerated Before market noise. As a result, assets prices can deviate from the foundations, raising risks.
To better understand how investors in emerging assets react to price variations not related to the foundations, three experts from the Bank of Mexico They used an Argentine case: a Technical error in the calculation of the differential of the emerging market bond index (EMBI) of Argentina happened months ago. The objective was to see how less informed investors interpreted market prices as signals and used them to infer what informed investors knew and to update their perception of the real value of an asset.
In research “Argentina: The Honor Student – By Merit and By Mistake. A Natural Experiment On” Information Effects “ of economists Oscar Meneses, Lorenzo Menna and Martín Tobalidentified an error that occurred in the early hours of the January 7, 2025when the EMBI differential fell more than 114 basic pointsa strong decline that caught the attention of investors.
Later, that same day, a Real -time index page error. This reduction in the EMBI was not anticipated or caused by changes in the foundations of Argentina or in the global environment, which makes it a completely exogenous impact. Thus, the “grades” of Argentina’s “student” shot themselves, without even having to “study,” the authors illustrated.
Impact on the bag and Muerta Vaca
The study investigated how this variation influenced the Argentine stock marketbecause the bag was always linked to Sovereign risk and the evaluations on the government’s ability to promote the Macroeconomic stability and a Regulatory framework with transparent rules.
“However, recently, this relationship seems to have intensified in Argentina, and indicators such as the EMBI differential and stock market rates reflect a tendency towards medium -term improvement. Therefore, it is not surprising that in recent times investors have used the EMBI to know the intrinsic value of Argentine companies,” says economists.
According to the study, through a statistical tool (Focus of differences in differences), proved that the technical error caused the price of Argentina’s shares to increase approximately one 1.18% more than that of other EME In the event interval, with an effect statistically significant to the 1 % level.
Economists saw how the Argentine index rose during this interval, reaching the 4%before descending after announcing the correction (in addition, in the 15 intervals of 10 minutes prior to the error, there were no systematic differences between the Argentine index and that of the other emerging). Then, after the publication of the incorrect differential of the EMBI, the difference between the Argentine index and that of the other emerging ones became statistically significant and positive.
“Initially, the effect was attenuated and ceased to be significant, but then rebounded and recovered statistical relevance when internet searches related to the term country risk They reached their maximum point. This simultaneity between the effect and the time when the news reached the greatest visibility in the media and on the Internet supports the presence of Information effects”, Explain the authors.
On the other hand, they used a Triple differences model to prove if the error affected more companies linked to the Hydrocarburge reserve of Muerta Vaca. To do this, they resorted to the Argentine companies included in the index for which there are data available and classified them as linked to Vaca Muerta if they are involved in the exploration, production, extraction of unconventional hydrocarbons or gas supply and supply and distribution of the region.
“The result shows that, although all Argentine companies experienced price increases, companies linked to Vaca Muerta experienced an additional increase of 1.31%. This result indicates that investors interpreted the fall of the EMBI as an improvement in the profitability perspectives of these oil and gas reserves, ”they argue.
In addition, to validate the results, through several tests of robustness, they observed that the use of individual companies data instead of an aggregate actions yields results similar to the difference model in differences, as well as an alternative index weighted by capitalization of the 10 largest companies.
“For the results of Vaca Muerta, the use of indices instead of data from individual companies preserves the effect, and the expansion of the definition to include companies that also benefit indirectly from the production of cow a death amplifies this effect even more. These results reinforce the idea that Argentine companies linked to the region improved due to the improvement in the perception of sovereign risk.”
The authors point out that their findings underline the importance of Sovereign risk in emerging markets, where even the changes promoted by technical errors They can influence assets. But they also highlight the importance of a effective communication strategy For emerging.
At the same time, they remember that some Solid foundations They are critical because they help maintain the attractiveness of a country as an investment destination in the medium and long term. Therefore, the results on the impact of a technical error, not based on the foundations of an asset, suggest that a clear and timely communication It is essential to prevent non -linear effects that could conduct, in certain circumstances, to unwanted macroeconomic events.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
