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The Asian Financial Crisis: The Role of Derivative Securities Trading and Foreign Investors

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  • Eric Ghysels

    ()

  • Junghoon Seon

Abstract

This paper is part of a larger research program pertaining to the role of derivatives during financial crisis and also part of the research pertaining to the causes of the Asian financial crisis. The Korean market is studied because of two reasons: (1) it is a representative example of the Asian financial meltdown and (2) there is a detailed data set available of all transactions by different types of protagonists, including foreign investors. The paper begins with establishing first the role of derivatives securities during the crisis. Once the role of futures contracts is understood, the paper examines whether derivatives trading by either domestic or non-resident investors, or both together, exerted a destabilizing influence during the crash. Nous étudions la crise financière asiatique et en particulier le marché coréen. Contrairement aux études précédentes, nous analysons le rôle des titres dérivés durant la crise et en particulier les transactions par des investisseurs étrangers. Nous démontrons l'impact négatif sur le marché causé par l'intervention de ces investisseurs.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2000s-11.

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Date of creation: 01 Mar 2000
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Handle: RePEc:cir:cirwor:2000s-11

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Related research

Keywords: Herding; feedback trading; futures; Crise financière; titres dérivés;

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References

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  1. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors Before and during a Crisis," OECD Economics Department Working Papers 210, OECD Publishing.
  2. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June.
  3. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
  4. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May.
  5. Keim, Donald B & Madhaven, Ananth, 1996. "The Upstairs Market for Large-Block Transactions: Analysis and Measurement of Price Effects," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 1-36.
  6. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. " An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-89, December.
  7. Bruce N. Lehmann and David M. Modest., 1994. "Trading and Liquidity on the Tokyo Stock Exchange: A Bird's Eye View," Research Program in Finance Working Papers RPF-234, University of California at Berkeley.
  8. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-78, May.
  9. G.J. Santoni, 1988. "The October crash: some evidence on the cascade theory," Review, Federal Reserve Bank of St. Louis, issue May, pages 18-33.
  10. Hamao, Y. & Hasbrouck, J., 1992. "Securities Trading in the Absence of Dealers: Trade and Quotes on the Tokyo Stock Exchange," Papers 92-35, Columbia - Graduate School of Business.
  11. John R. Nofsinger & Richard W. Sias, 1999. "Herding and Feedback Trading by Institutional and Individual Investors," Journal of Finance, American Finance Association, vol. 54(6), pages 2263-2295, December.
  12. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
  13. Lehmann, Bruce N & Modest, David M, 1994. " Trading and Liquidity on the Tokyo Stock Exchange: A Bird's Eye View," Journal of Finance, American Finance Association, vol. 49(3), pages 951-84, July.
  14. Balduzzi, Pierluigi & Bertola, Giuseppe & Foresi, Silverio, 1995. " Asset Price Dynamics and Infrequent Feedback Trades," Journal of Finance, American Finance Association, vol. 50(5), pages 1747-66, December.
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Cited by:
  1. D. Sornette & W. -X. Zhou, 2003. "Evidence of Fueling of the 2000 New Economy Bubble by Foreign Capital Inflow: Implications for the Future of the US Economy and its Stock Market," Papers cond-mat/0306496, arXiv.org.
  2. Röthig, Andreas, 2004. "Currency futures and currency crises," Publications of Darmstadt Technical University, Institute of Economics (VWL) 4022, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).

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