US Presidential election effects on Mexican ADRs: a two-year analysis

Abstract

ABSTRACTExaminations of the impact of Brexit on UK ADRs show the ADR and Great British Pound (GBP) values decreased immediately after the vote results were known. Within a year, the ADRs recovered but the GBP did not. This study examines the one- and two-year changes in Mexican ADR and Peso values following the 2016 US Presidential election vote to determine whether a similar reaction and overreaction resulted. Because of the President’s campaign platform, including the renegotiation of trade agreements like NAFTA, uncertainty about profitability of firms headquartered in Mexico increased. Within two months of the vote, Mexican ADRs lost about 7 percent of their value (mostly due to the depreciation of the Peso). The ADRs underperformed the Peso by 3 percent after 1 year and 10 percent after 2 years. However, the ADRs underperformed the S&P 500 by 19 percent after 1 year and 41 percent after 2 years indicating the initial reaction was not overreaction based on the sustained losses years later (unlike the Brexit results on UK ADRs).