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Does asymmetric information play a role in explaining the Asian crisis? Application to Indonesian and Malaysian cases using a two-state Markov Switching model

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  • Emna Trabelsi

    ()
    (ISG - Institut Supérieur de Gestion de Tunis - Université de Tunis)

Abstract

This paper aims at establishing a relationship between disparity of information and the probability of speculative attack in explaining the Asian crisis. We apply the general framework of Markov-Switching models to the differential of interest rates (DIR), subsequently in Indonesia and Malaysia. We allow dependency of the transition probabilities over the asymmetric information indicators. The Maximum Likelihood estimators results (MLE) are twofold: (1) an increase of information dispersion among speculators leads to a higher probability of a currency crisis (2) there is a significant asymmetric impact of information disparity as measured by difference between fund price and Net Asset Value (NAV) on the transition probability in the case of Indonesia, while the hypothesis is rejected for Malaysia's case.

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Paper provided by HAL in its series Working Papers with number hal-00536311.

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Date of creation: 12 Nov 2010
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Handle: RePEc:hal:wpaper:hal-00536311

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Related research

Keywords: Speculative attack; Global Games; Asymmetric information; Markov-Switching Models;

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  1. Jeffrey A. Frankel & Sergio L. Schmukler, 1998. "Country Funds and Asymmetric Information," International Finance 9805003, EconWPA.
  2. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
  3. Jeffrey A. Frankel & Sergio L. Schmukler, 1996. "Country Fund Discounts, Asymmetric Information and the Mexican Crisis of 1994: Did Local Residents Turn Pessimistic Before International Investors?," NBER Working Papers 5714, National Bureau of Economic Research, Inc.
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