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US-Thailand Bilateral Safety-first Portfolio Optimisation around the 1997 Asian Financial Crisis

Author

Listed:
  • Mahfuzul Haque

    (Mahfuzul Haque (corresponding author), Associate Professor of Finance, College of Business, Indiana State University, Terre Haute, IN 47809. E-mail: mhaque@isugw.indstate.edu)

  • Oscar Varela

    (Oscar Varela, Charles R. and Dorothy S. Carter Chair in Business Administration, Professor of Finance, Department of Economics and Finance, 500 W. University Avenue, University of Texas at El Paso, El Paso, TX 79968. E-mail: ovarela3@utep.edu)

Abstract

We examine bilateral US- and Thailand-based equity portfolios around the 1997 baht crisis using an extreme value framework for safety-first (SF) portfolio optimisation, with comparisons to the Markowitz mean-variance minimum variance portfolio (MVP). The optimal SF portfolio is invested 100 per cent in the US regardless of the periods considered when returns are denominated in USD, but 80 per cent in the US in the post-crisis period when returns are denominated in THB. The MVP for USD denominations is 85 per cent invested in the US regardless of the period, in contrast to 100 per cent for SF, suggesting more investment in the US when USD returns and safety considerations are paramount. In contrast, there are minimal differences between the MVP and SF for THB denominations, particularly post crisis when there are no differences. The baht crisis seems to have shifted investments toward the US for those with an interest in safety first and USD returns, but had minimal effect on the portfolio composition for those with an interest in THB returns.

Suggested Citation

  • Mahfuzul Haque & Oscar Varela, 2010. "US-Thailand Bilateral Safety-first Portfolio Optimisation around the 1997 Asian Financial Crisis," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 171-197, August.
    • Handle: RePEc:sae:emffin:v:9:y:2010:i:2:p:171-197
    DOI: 10.1177/097265271000900203
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    More about this item

    Keywords

    JEL Classification: G11 Portfolio Choice; Investment Decisions; JEL Classification: G15 International Financial Markets; JEL Classification: F37 International Finance; Portfolio optimisation; safety-first; extreme-value; emerging markets; financial crisis; risk management;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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