Is this time different for Asia?: Evidence from stock Markets

The recent sub-prime financial crisis initially affected the Asian economy to a degree comparable to that of the downturn in the Asian financial crisis; however, the recovery in Asia took place at a much faster pace than during the Asian financial crisis. We investigate whether the effects of sub-prime financial crisis on 13 Asian economies are similar to those of the previous crisis, by examining stock markets for volatility spillovers and causality directions between the US and Asia as well as for the degree of regional integration. The empirical evidence indicates stark differences between these two crises. First, the decline in volatility spillovers during the period of financial turmoil was more pervasive for the Asian financial crisis. Second, the estimated point of transition in correlation is indicative of market participants’ awareness of the upcoming stock market crash in September 2008. Third, the causality from the epicenter of crises is intensified during crisis. Fourth, regional integration was strengthened after the financial turmoil of the recent sub-prime financial crisis but not after the Asian financial crisis.