Argentina: The honor student—By merit and by mistake. A natural experiment on “information effects”

Abstract

On January 7, 2025, Argentina's EMBI spread plunged by over 114 basis points. J.P. Morgan later revealed that the decline was due to a technical error, creating a rare natural experiment—an exogenous shift in sovereign risk pricing. Because this error was neither anticipated nor related to Argentina's fundamentals or global conditions, the experiment provides a unique setting to identify the “information effect,” whereby investors update their beliefs in response to noisy signals embedded in price movements. Using a Difference-in-Differences approach and high-frequency (intraday) stock market data, we find that Argentine equities outperformed those of other EMEs during the error window, indicating that investors revised their asset valuations based on mispriced signals. These results underscore the importance of clear and timely communication in emerging market economies to prevent second-order effects that, despite solid fundamentals, can trigger herding behavior and macrofinancial instability.