Market Efficiency during the Mexican Banks’ Privatization Announcement

Abstract

During the last years of the decade of the 1980s, the Mexican government reduced its participation as an owner of productive facilities. After privatizing the national railway system, airlines, mining companies, etc., in 1990 it was time to fully privatize the banking industry. Banks had been expropriated eight years before, in September, 1982. However, between 1987 and 1990, fifteen state-owned banks had issued small amounts of stock to the market. So, on May 2nd of 1990, when President Carlos Salinas publicly announced that all government owned banks would soon be fully privatized, several commercial banks were already partially publicly traded. In retrospective, the full-privatization announcement represents a privileged opportunity to test the efficiency of the Mexican stock market at that time. Using Event Study Methodology, this work analyzes how significant was the response of the publicly traded banks’ stock price to the full privatization announcement, and quantifies its wealth-creation effects.