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Emerging Stock Market Liberalization And Currency Crises

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  • Dropsy V.
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    Abstract

    The liberalization of emerging stock markets in Latin America and East Asia in the late 1980s and early 1990s was expected to make these equity markets more efficient and more integrated in world financial markets. However, large capital inflows in the first half of the 1990s were followed by sudden and huge capital outflows in the second half of the 1990s, which ultimately provoked severe currency and economic crises. It is possible that emerging stock markets remained inefficient despite their liberalization, and allowed speculative bubbles to develop and eventually burst. The main objective of this paper is therefore to test the efficiency of Latin American and East Asian equity markets before and after their liberalization. We also examine the integration of these emerging stock markets in world financial markets, and investigate the relationships between stock returns and currency crises over these two periods.

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    File URL: http://www.ersj.eu/repec/ers/papers/01_12_p6.pdf
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    Bibliographic Info

    Article provided by European Research Studies Journal in its journal European Research Studies Journal.

    Volume (Year): IV (2001)
    Issue (Month): 1-2 (January - June)
    Pages: 109-

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    Handle: RePEc:ers:journl:v:iv:y:2001:i:1-2:p:109-

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    1. Reinhart, Carmen & Reinhart, Vincent, 1998. "“Some Lessons for Policy Makers Who Deal with the Mixed Blessing of Capital Inflows,”," MPRA Paper 7123, University Library of Munich, Germany.
    2. Stiglitz, Joseph E, 1999. "The World Bank at the Millennium," Economic Journal, Royal Economic Society, vol. 109(459), pages F577-97, November.
    3. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Working Paper Research 53, National Bank of Belgium.
    4. Sarno, Lucio & Taylor, Mark P., 1999. "Moral hazard, asset price bubbles, capital flows, and the East Asian crisis:: the first tests," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 637-657, August.
    5. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, 04.
    6. Cartapanis, Andre & Dropsy, Vincent & Mametz, Sophie, 2002. "The Asian Currency Crises: Vulnerability, Contagion, or Unsustainability," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 79-91, February.
    7. Kawakatsu, Hiroyuki & Morey, Matthew R., 1999. "Financial liberalization and stock market efficiency: an empirical examination of nine emerging market countries," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 353-371, November.
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