Does the Market Pick Up on the Total Value Added to the Peruvian Companies by a Devaluation of the Peruvian Nuevo Sol?

Abstract

The main goal of this paper is to test a form of market efficiency in the Lima Stock Exchange (Bolsa de Valores de Lima). This study examines how the individual stock prices of two selected companies are affected by three standard deviation changes in the exchange rate between the Peruvian Nuevo Sol and the US dollar. The main question that drives this paper is whether the market picks up on the total value added to these Peruvian companies by a devaluation of the Peruvian Nuevo Sol. Within this overall goal, the first objective is to determine if there is a relationship between the revenue and expense structure of the selected companies once a three standard deviation in the exchange rate has taken place, and the reaction of the market to these returns in the exchange rate. The findings of this study suggest that, in reference to the companies studied, the Peruvian, stock market does not impound instantly the impact that a change on the exchange rate has in the value of these corporations.