What Can Currency Crisis Models Tell Us About the Risk of Withdrawal from the EMU? Evidence from ADR Data

21 Pages Posted: 2 Jun 2011

See all articles by Stefan Eichler

Stefan Eichler

Leibniz Universität Hannover; Halle Institute for Economic Research

Date Written: July 2011

Abstract

We study whether ADR (American depositary receipt) investors perceive the risk that countries such as Greece, Ireland, Italy, Portugal or Spain could leave the eurozone to address financial problems produced by the sub‐prime crisis. Using daily data, we analyse the impact of vulnerability measures related to currency crisis theories on ADR returns. We find that ADR returns fall when yield spreads of sovereign bonds or CDSs (credit default swaps) rise (i.e. when debt crisis risk increases); when banks' CDS premiums rise or stock returns fall (i.e. when banking crisis risk increases); or when the euro's overvaluation increases (i.e. when the risk of competitive devaluation increases).

Suggested Citation

Eichler, Stefan, What Can Currency Crisis Models Tell Us About the Risk of Withdrawal from the EMU? Evidence from ADR Data (July 2011). JCMS: Journal of Common Market Studies, Vol. 49, Issue 4, pp. 719-739, 2011, Available at SSRN: https://ssrn.com/abstract=1856924 or http://dx.doi.org/10.1111/j.1468-5965.2010.02156.x

Stefan Eichler (Contact Author)

Leibniz Universität Hannover

Institute of Money and International Finance
Koenigsworther Platz 1
Hannover, 30167
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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