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What triggers market jitters? A chronicle of the Asian crisis

  • Kaminsky, Graciela L.
  • Schmukler, Sergio L.

In the chaotic financial environment of East Asia in 1997-98, daily changes in stock prices of as much as 10 percent became commonplace. The authors analyze what type of news moved the market in those days of extreme market jitters. They find that movements are triggered by both local and neighbor-country news. News about agreements with international organizations and credit rating agencies have the most weight. Some of those large changes in stock prices, however, cannot be explained by any apparent substantial news but seem to be driven by herd instincts in the market itself. On average, the one-day market rallies are sustained with the largest one-day losses are recovered - suggesting that investors overreact to bad news.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2094.

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Date of creation: 30 Apr 1999
Date of revision:
Handle: RePEc:wbk:wbrwps:2094
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  1. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
  2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  3. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
  4. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
  5. Calvo, Guillermo A. & Mendoza, Enrique, 1997. "Rational Herd Behavior and the Globalization of Securities Markets," Working Papers 97-26, Duke University, Department of Economics.
  6. Laura E. Kodres & Matthew Pritsker, 1998. "A rational expectations model of financial contagion," Finance and Economics Discussion Series 1998-48, Board of Governors of the Federal Reserve System (U.S.).
  7. Ronald I. McKinnon & Huw Pill, 1996. "Credible Liberalizations and International Capital Flows: The "Overborrowing Syndrome"," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 7-50 National Bureau of Economic Research, Inc.
  8. repec:oup:qjecon:v:107:y:1992:i:3:p:797-817 is not listed on IDEAS
  9. Frankel, Jeffrey A & Schmukler, Sergio L, 2000. "Country Funds and Asymmetric Information," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(3), pages 177-95, July.
  10. Hali J. Edison, 1996. "The reaction of exchange rates and interest rates to news releases," International Finance Discussion Papers 570, Board of Governors of the Federal Reserve System (U.S.).
  11. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  12. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
  13. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
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