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Currency crises and the stock market: empirical evidence for another type of twin crisis

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  • Stefan Eichler
  • Dominik Maltritz

Abstract

We explore the dependency between currency crises and the stock market in emerging economies. Our focus is two-fold. First, the risk of a currency crisis rises as the foreign stake in the domestic stock market increases. Successful economies with high capital flows into their booming stock markets especially are prone to stock market-induced currency crises. Second, we apply the dividend growth model to show that stock markets crash in the run-up to a currency crisis. This new type of twin crisis is empirically tested by employing a logit framework using quarterly data for 33 emerging economies for 1994Q1-2007Q4.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036846.2010.491474
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 43 (2011)
Issue (Month): 29 ()
Pages: 4561-4587

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Handle: RePEc:taf:applec:v:43:y:2011:i:29:p:4561-4587

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Cited by:
  1. Xingwang Qian & Andreas Steiner, 2012. "International Reserves and the Composition of Equity Capital Inflows," Working Papers 90, Institute of Empirical Economic Research.

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