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Financial Linkage in East Asian Countries since the East Asian Crisis


  • Chae-Shick Chung

    (Department of Economics Sogang University Seoul, 100-611 Korea)

  • Chong Ook Rhee

    (Department of Economics Seoul Women's University Seoul, 139-774 Korea)


This paper reports the results of an empirical analysis of the linkage between the financial markets (foreign-exchange, stock, and bond markets) of Korea and the financial markets of the United States, Japan, and six major East Asian countries. A multivariate generalized autoregressive conditional heteroskedastic (GARCH) model is used to analyze 23 financial variables and identify time-varying correlation coefficients. A comparison of these values before and after the currency crisis yields four main conclusions. First, the interest rates in the major Asian countries, including Korea, are moving independently of one another. Second, the correlations between the Korean financial variables are higher after the crisis than before it, and the highest correlation is between the won/dollar exchange rate and the stock price index. The high linkage between the won/dollar exchange rate and stock price index signifies that short-term foreign investment flow influences the won/dollar exchange rate and the stock price index equally. Third, the impact of U.S. stock prices on Korean stock prices has increased by more than 20 times since the currency crisis, indicating a synchronization of the Korean stock market and the U.S. stock market. Fourth, the linkage between the stock market prices of Korea and those of Japan and several East Asian countries has been increasing since the currency crisis, whereas the Korean-U.S. stock market linkage has become somewhat less significant. Copyright (c) 2002 Center for International Development and the Massachusetts Institute of Technology.

Suggested Citation

  • Chae-Shick Chung & Chong Ook Rhee, 2002. "Financial Linkage in East Asian Countries since the East Asian Crisis," Asian Economic Papers, MIT Press, vol. 1(3), pages 122-147.
  • Handle: RePEc:tpr:asiaec:v:1:y:2002:i:3:p:122-147

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    Cited by:

    1. Claus, Edda & Lucey, Brian M., 2012. "Equity market integration in the Asia Pacific region: Evidence from discount factors," Research in International Business and Finance, Elsevier, vol. 26(2), pages 137-163.

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