IDEAS home Printed from https://ideas.repec.org/p/uct/uconnp/2002-30.html
   My bibliography  Save this paper

Currency Depreciation and Korean Stock Market Performance during the Asian Financial Crisis

Author

Listed:
  • WenShwo Fang

    (Feng Chia University)

  • Stephen M. Miller

    (University of Nevada and University of Connecticut)

Abstract

Structural shifts characterize the volatility of the Korean stock and foreign exchange markets during the 1997 Asian financial crisis. This paper employs an unrestricted bivariate GARCH-M model of stock market returns to investigate empirically the effects of daily currency depreciation on Korean stock market returns. The evidence shows that currency depreciation significantly affects stock market performance through three distinct channels: exchange rate depreciation adversely affects stock market returns, higher exchange rate depreciation volatility induces higher stock market returns, and exchange rate depreciation volatility raises stock market return volatility. The evidence suggests that small open stock markets are vulnerable to exchange rate movements.

Suggested Citation

  • WenShwo Fang & Stephen M. Miller, 2002. "Currency Depreciation and Korean Stock Market Performance during the Asian Financial Crisis," Working papers 2002-30, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2002-30
    as

    Download full text from publisher

    File URL: http://web2.uconn.edu/economics/working/2002-30.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    2. Pindyck, Robert S, 1984. "Risk, Inflation, and the Stock Market," American Economic Review, American Economic Association, vol. 74(3), pages 335-351, June.
    3. Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-294, October-D.
    4. Wenshwo Fang, 2001. "Stock return process and expected depreciation over the Asian financial crisis," Applied Economics, Taylor & Francis Journals, vol. 33(7), pages 905-912.
    5. Jorion, Philippe, 1991. "The Pricing of Exchange Rate Risk in the Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 363-376, September.
    6. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    7. Engel, Charles & Rodrigues, Anthony P, 1989. "Tests of International CAPM with Time-Varying Covariances," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(2), pages 119-138, April-Jun.
    8. Solnik, Bruno, 1987. " Using Financial Prices to Test Exchange Rate Models: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 141-149, March.
    9. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    10. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
    11. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    12. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
    13. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    14. Ajayi, Richard A & Mougoue, Mbodja, 1996. "On the Dynamic Relation between Stock Prices and Exchange Rates," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(2), pages 193-207, Summer.
    15. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    16. Baillie, R.T. & Degennaro, R., 1988. "The Impact Of Delivery Terms On Stock Return Volatility," Papers 8804, Michigan State - Econometrics and Economic Theory.
    17. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-234, April.
    18. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    19. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
    20. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    21. Mukherjee, Tarun K & Naka, Atsuyuki, 1995. "Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 18(2), pages 223-237, Summer.
    22. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paul Alagidede & Theodore Panagiotidis & Xu Zhang, 2011. "Causal relationship between stock prices and exchange rates," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(1), pages 67-86.
    2. repec:spd:journl:v:67:y:2017:i:3:p:3-17 is not listed on IDEAS
    3. Bonga-Bonga, Lumengo & Gnagne, Pascal Xavier, 2017. "The impact of exchange rate volatility on capital flows in BRICS economies," MPRA Paper 84773, University Library of Munich, Germany.
    4. Bing Zhang & Xindan Li, 2010. "Currency appreciation and stock market performance: Evidence from China," Frontiers of Economics in China, Springer;Higher Education Press, vol. 5(3), pages 393-411, September.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2002-30. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark McConnel). General contact details of provider: http://edirc.repec.org/data/deuctus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.