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The Cartagena Declaration, the Baker Plan, and U.S. bank security returns: An empirical investigation

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Abstract

This paper examines the impact of the Cartagena Declaration by 11 Latin American countries and the Baker Plan for resolving the LDC debt problem on the security returns of major U.S. banks. An event parameter approach is employed to investigate two hypotheses, the new-information and the rational-pricing hypotheses, using daily stock market data. Sample banks are grouped into three portfolios depending on their LDC exposure. The results indicate that bank stock returns adjust quickly to new information. Also, there is rational investor reaction to observed events that were neither borrower- nor lender-induced. Those banks displaying greater exposure to LDC loans were affected in a direct and proportionately greater manner.

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Authors and Affiliations

  1. University of Southern Mississippi, 39406, Hattiesburg, MS

    William H. Sackley

  2. University of New Orleans, 70148, New Orleans, IA

    M. Kabir Hassan

Authors
  1. William H. Sackley
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  2. M. Kabir Hassan
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Sackley, W.H., Hassan, M.K. The Cartagena Declaration, the Baker Plan, and U.S. bank security returns: An empirical investigation. J Econ Finan 17, 51–63 (1993). https://doi.org/10.1007/BF02920638

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  • DOI: https://doi.org/10.1007/BF02920638

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