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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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  • Jarl G. Kallberg & Paolo Pasquariello, 2005. "An Examination of the Asian Crisis: Regime Shifts in Currency and Equity Markets," The Journal of Business, University of Chicago Press, vol. 78(1), pages 169-212, January.
  • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:1:p:169-212
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    Cited by:

    1. 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, vol. 7(1), pages 80-100, April.
    2. Leung, Henry & Schiereck, Dirk & Schroeder, Florian, 2017. "Volatility spillovers and determinants of contagion: Exchange rate and equity markets during crises," Economic Modelling, Elsevier, vol. 61(C), pages 169-180.
    3. Colavecchio, Roberta & Funke, Michael, 2008. "Volatility transmissions between renminbi and Asia-Pacific on-shore and off-shore U.S. dollar futures," China Economic Review, Elsevier, vol. 19(4), pages 635-648, December.
    4. 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, vol. 33(11), pages 1983-1995, November.
    5. Arteta, Carlos & Hale, Galina, 2008. "Sovereign debt crises and credit to the private sector," Journal of International Economics, Elsevier, vol. 74(1), pages 53-69, January.
    6. Jarl G. Kallberg & Crocker H. Liu & Paolo Pasquariello, 2014. "On the Price Comovement of U.S. Residential Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 71-108, March.
    7. 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, vol. 30(1), pages 62-73, February.
    8. Colavecchio, Roberta & Funke, Michael, 2009. "Volatility dependence across Asia-Pacific onshore and offshore currency forwards markets," Journal of Asian Economics, Elsevier, vol. 20(2), pages 174-196, March.
    9. Martin Hoesli & Kustrim Reka, 2015. "Contagion Channels between Real Estate and Financial Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 101-138, March.
    10. Bonga-Bonga, Lumengo, 2015. "Uncovering equity market contagion among BRICS countries: an application of the multivariate GARCH model," MPRA Paper 66262, University Library of Munich, Germany.
    11. 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, vol. 222(1), pages 96-103.
    12. Pami Dua & Divya Tuteja, 2016. "Contagion in International Stock and Currency Markets During Recent Crisis Episodes," Working papers 258, Centre for Development Economics, Delhi School of Economics.
    13. 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, vol. 26(7), pages 1206-1228, November.
    14. 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.
    15. Kallberg, Jarl & Pasquariello, Paolo, 2008. "Time-series and cross-sectional excess comovement in stock indexes," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 481-502, June.
    16. Pasquariello, Paolo, 2008. "The anatomy of financial crises: Evidence from the emerging ADR market," Journal of International Economics, Elsevier, vol. 76(2), pages 193-207, December.
    17. Dua, Pami & Tuteja, Divya, 2016. "Financial crises and dynamic linkages across international stock and currency markets," Economic Modelling, Elsevier, vol. 59(C), pages 249-261.

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