Stock Prices as a leading indicator of the East Asian Financial Crisis
AbstractUsing a basic currency crisis model, we assess the effectiveness of stock prices as a leading indicator of the East Asian currency crisis in 1997 and 1998. Stock prices are incorporated into a basic monetary model, through the wealth effect postulated by Friedman (1988). In addition to the domestic stock price, we also incorporate the stock prices of Hong Kong, China and Japan to determine their ability to predict the crisis. Using monthly data, the results indicate that the domestic stock price is a significant leading indicator, however the main stock prices indicator of the crisis is the Hong Kong stock price. In addition the US price level is also a highly significant predictor of the crisis. Causality tests suggest evidence of bi-causality between the stock markets and foreign exchange markets.
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Bibliographic InfoPaper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1311103.
Length: 19 pages
Date of creation: 2003
Date of revision:
Currency Crisis; Stock Prices; Monetary Model.;
Find related papers by JEL classification:
- F30 - International Economics - - International Finance - - - General
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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