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Diversification, rationality and the Asian economic crisis

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  • Bowman, Robert G.
  • Chan, Kam Fong
  • Comer, Matthew R.
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    Abstract

    We examine the reaction of world equity markets to the 1997 Asian Crisis. Correlations across the markets increased dramatically during the economic crisis but only during a relatively short period around the crisis. After the crisis, the benefits of international diversification improved substantially but did not return to the levels existing before the crisis. We then examine whether the market reactions to the crisis can be explained by economic fundamentals. We find that virtually all of the variation in returns across markets can be explained by these factors. The reaction of markets to the Asian Crisis was rational.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 18 (2010)
    Issue (Month): 1 (January)
    Pages: 1-23

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    Handle: RePEc:eee:pacfin:v:18:y:2010:i:1:p:1-23

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Asian Crisis Contagion Economic fundamentals International diversification;

    References

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    1. Eric Friedman & Simon Johnson & Peter Boone & Alasdair Breach, 1999. "Corporate Governance in the Asian Financial Crisis," Departmental Working Papers 199920, Rutgers University, Department of Economics.
    2. William Goetzmann & Lingfeng Li & K. Rouwenhorst, 2001. "Long-Term Global Market Correlations," Yale School of Management Working Papers ysm237, Yale School of Management, revised 01 Jan 2008.
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    17. Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," The Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January.
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    Cited by:
    1. Chan, Kam Fong & Treepongkaruna, Sirimon & Brooks, Robert & Gray, Stephen, 2011. "Asset market linkages: Evidence from financial, commodity and real estate assets," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1415-1426, June.
    2. Chiang, Shu-Mei & Chen, Hsin-Fu & Lin, Chi-Tai, 2013. "The spillover effects of the sub-prime mortgage crisis and optimum asset allocation in the BRICV stock markets," Global Finance Journal, Elsevier, vol. 24(1), pages 30-43.

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