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An Examination of the Asian Crisis: Regime Shifts in Currency and Equity Markets

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  • Jarl G. Kallberg

    (Stern School of Business, New York University)

  • Paolo Pasquariello

    (Ross School of Business, University of Michigan)

Abstract

Using a nonparametric technique for the identification of regime shifts, we find breaks in the structural relations between currency and equity returns and return volatility in Indonesia, Malaysia, the Philippines, South Korea, Taiwan, and Thailand during the recent Asian crisis. Volatility breaks occurred in late 1994 and 1997, while return breaks were concentrated in early 1998. After the estimated breaks, many Asian equity markets became more responsive to the volatility of the corresponding domestic exchange rate. We find that information spillover and portfolio rebalancing, rather than common information shocks, represented major channels for the transmission of breaks across countries.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 1 (January)
Pages: 169-212

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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:169-212

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Pasquariello, Paolo, 2008. "The anatomy of financial crises: Evidence from the emerging ADR market," Journal of International Economics, Elsevier, Elsevier, vol. 76(2), pages 193-207, December.
  2. HUSSAIN Haroon & HUSSAIN Rana Yasir & SHAH Syed Waqar Azeem & FRAZ Ahmed, 2012. "International Portfolio Diversification In Developing Equity Markets Of South Asia," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 7(1), pages 80-100, April.
  3. Michael Funke & Roberta Colavecchio, 2009. "Volatility dependence across Asia-Pacific onshore and offshore currency forwards markets," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20903, Hamburg University, Department of Economics.
  4. Chiang, Thomas C. & Jeon, Bang Nam & Li, Huimin, 2007. "Dynamic correlation analysis of financial contagion: Evidence from Asian markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(7), pages 1206-1228, November.
  5. Roberta Colavecchio & Michael Funke, 2007. "Volatility dependence across Asia-Pacific on-shore and off-shore U.S. dollar futures markets," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20708, Hamburg University, Department of Economics.
  6. Eichler, Stefan & Karmann, Alexander & Maltritz, Dominik, 2009. "The ADR shadow exchange rate as an early warning indicator for currency crises," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(11), pages 1983-1995, November.
  7. Ye, Wuyi & Liu, Xiaoquan & Miao, Baiqi, 2012. "Measuring the subprime crisis contagion: Evidence of change point analysis of copula functions," European Journal of Operational Research, Elsevier, Elsevier, vol. 222(1), pages 96-103.
  8. Carlos Arteta & Galina Hale, 2006. "Sovereign debt crises and credit to the private sector," Working Paper Series, Federal Reserve Bank of San Francisco 2006-21, Federal Reserve Bank of San Francisco.
  9. Kallberg, Jarl & Pasquariello, Paolo, 2008. "Time-series and cross-sectional excess comovement in stock indexes," Journal of Empirical Finance, Elsevier, Elsevier, vol. 15(3), pages 481-502, June.
  10. Koutmos, Gregory & Martin, Anna D., 2011. "Currency bid-ask spread dynamics and the Asian crisis: Evidence across currency regimes," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(1), pages 62-73, February.
  11. Zouheir Mighri & Faysal Mansouri, 2013. "Dynamic Conditional Correlation Analysis of Stock Market Contagion: Evidence from the 2007-2010 Financial Crises," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 637-661.

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