Impact of the US Subprime Mortgage Crisis on the Mexican Economy

The long-horizon event study methodology is utilized to analyze the impact of the U.S. subprime mortgage crisis on the Mexican economy. The “abnormal returns” on the Mexican market portfolio and their average and cumulative returns are calculated. The empirical findings indicate that the US crisis negatively affected the Mexican equity market earlier and more severely than it affected the US equity market. These findings are attributable to changes in the trade flows increased by NAFTA, the remittances by the expatriate Mexican workers in the US, and the monopolistic and oligopolistic market structure created by governmental intervention, corruption and political connections in the Mexican economy.