Asian Financial Crisis Period Research Articles

A Random-Matrix-Theory-Based Analysis of the Brazilian Stock Market During the 2008 Financial Crisis and Asian Crisis and Temporal Neighborhoods

Several approaches and concepts of physics, such as Random Matrix Theory, have been used to investigate the complexity of financial time series. This study aims to analyze the spectrum of stock correlation in the Brazilian stock market by applying Random Matrix Theory to the subprime and Asian financial crisis periods and their temporal neighborhoods. Results show evident synchronized market behavior during both crises. The results also show that the period preceding a crisis presents symptoms which may predict future crises. Thereby, the methodology presented here could be used by the market as a tool that helps to anticipate possible market fluctuations.

Privatisation of Power Generation in Malaysia: Impact on the Entry of Malays into Power Business

This paper reviews Malaysia’s experience in privatisation in power generation from the first half of the 1990s and the role it played in promoting Malay entry into business. In the pre-1949 period, privately-owned independent power producers and distributors (IPPs and Ds) were the dominant players. The government-owned integrated power utility, Tenaga Nasional Berhad (TNB), became a monopoly only since 1976. TNB’s finances were strained during the Asian Financial Crisis (AFC) period, but contracts were honoured despite strong calls for renegotiation of power purchase agreements (PPA). With the open tender era from 2012, the PPA terms have become very competitive. However, as TNB can continue to bid, this has not made for a level playing field. With competition and fall in interest rate, there has been a significant decline in internal rate of returns (IRRs). Guaranteed off-take enabled some concessionaires to still earn a good equity IRR through aggressive gearing. Development of a more active and liquid bond market has played a key role in privatisation.

Robust international portfolio optimization with worst‐case mean‐CVaR

We propose a robust international portfolio optimization model in a worst-case mean-CVaR framework. In our model, we assume that the distributions, the first- and second-order moments of returns of assets and exchange rates are ambiguous. To control the conservatism of our robust model, we incorporate a new support set constructed by intervals of deviations from the no-arbitrage condition in currency markets into the ambiguity set of distribution. Our model can be reformulated as an equivalent semi-definite programming problem, which is computationally tractable. We conduct empirical experiments by the weekly rolling window strategy during the total period, the 1997 Asian Financial Crisis period, and the recent stable period. Using various performance measures, we investigate the out-of-sample performance of our model with comparison to those of other four benchmark models. The experimental results demonstrate that our model has the best performance in terms of return and various risk adjusted return measures during all of the three periods. They suggest that investors can obtain significant benefits when employing the robust portfolio strategy and the new support set, and considering the ambiguity of the first- and second-order moments during both volatile and stable periods.

Seasonality in the Thai stock market: The lottery effect

This study focuses on the influence of the lottery day effect in the Thai stock market. Daily stock index of the Stock Exchange of Thailand (SET) from January 1, 1990 to October 3, 2018 are used to examine the impact of the lottery effect on the return and volatility of the stock indices. For robustness test, we also investigate this effect in three periods, the Asian financial crisis period, the global crisis period, and the whole period. Using the GARCH(1,1) and TGARCH(1,1) models, the results show that there is the persistence of volatility and volatility patterns of clustering, asymmetry and leverage effect in the Thai context. The results significantly suggest that lottery day is priced as a systematic risk factor in the Thai stock market and plays an important role to predict the future returns and volatility for the Asian crisis period.

Seasonality in the Thai stock market: the lottery effect

This study focuses on the influence of the lottery day effect in the Thai stock market. Daily stock index of the Stock Exchange of Thailand (SET) from January 1, 1990 to October 3, 2018 are used to examine the impact of the lottery effect on the return and volatility of the stock indices. For robustness test, we also investigate this effect in three periods, the Asian financial crisis period, the global crisis period, and the whole period. Using the GARCH(1,1) and TGARCH(1,1) models, the results show that there is the persistence of volatility and volatility patterns of clustering, asymmetry and leverage effect in the Thai context. The results significantly suggest that lottery day is priced as a systematic risk factor in the Thai stock market and plays an important role to predict the future returns and volatility for the Asian crisis period.

IMPACTS OF CRISES ON DYNAMIC LINKAGES BETWEEN FINANCIAL AND CAPITAL MARKETS

This paper studies the cointegration and bivariate causality relationships between capital and financial markets for the seven Asian countries, which were badly hit by the Asian Financial Crisis (AFC). Our empirical results show that, before the AFC, all countries, except the Philippines and Malaysia, experienced no evidence of Granger causality between the exchange rates and the stock prices. However, the appearance of the causality, but not the cointegration, between the capital and financial markets becomes stronger during the AFC period. Surprisingly, after the September 11 terrorist attack (911), the causality relationship between these two markets reverts back to normal as in the pre-AFC period and their cointegration relationship is weakened. From our findings, it can be inferred that: First, AFC has a bigger and more direct impact on the causality relationship between the financial and capital markets in Asia; Second, the 911 basically had no impact on the causality relationship between these two markets; and third, the Asian financial and capital markets have become more mature and efficient after the 911 crisis.

Long-term Economic Development and Employment Changes: The Indonesian Experience

This article assesses Indonesia’s long experience with economic development from 1990 up to 2014–2015. It examines economic growth and employment changes in three sub-periods: the high economic growth period 1990–1996; the Asian financial crisis and recovery period 1997–2007 and the global economic crisis from 2008 to the present. In this periodisation, the crisis years and their impact on employment experienced by Indonesia from 1990 to 2014–2015 will be visible. Additionally, it also examines changes in employment dualism, that is, formal vs. informal employment as well as changes in labour productivity during this extended time. This article shows that Indonesia’s economy performed exceptionally well after the 1997–1998 Asian financial crisis on the back of a continued prudent macroeconomic framework and solid policy reforms. Employment continued to increase and poverty continued to show a declining trend.

Testing the relative purchasing power parity hypothesis: the case of Korea

ABSTRACTThis study examines the relative purchasing power parity (PPP) hypothesis using the data from the Korean won–US dollar and the Korean won–Japanese yen foreign exchange markets. We extract proxies for inflation from stock market returns of Korea, the United States and Japan based on the method used by Chowdhry, Roll and Xia in 2005. We explicitly test the relative PPP hypothesis in light of the short-run price volatility using monthly, bimonthly and quarterly data from 1 January 1998 to 31 December 2012. Our findings suggest that the empirical test results from the entire sample period do not support the relative PPP hypothesis. However, the results from the sample period excluding the Asian Financial Crisis period show that the relative PPP hypothesis holds for the Korean won–US dollar market with a moderate magnitude of inflation impact, but not for the Korean won–Japanese yen market. Abrupt changes in exchange rates during the crisis period may have affected the relationship between inflation and exchange rates. This result also suggests that factors other than inflation might have affected the Korean won–Japanese yen exchange rate.

Why is no financial crisis a dress rehearsal for the next? Exploring contagious heterogeneities across major Asian stock markets

Our study attempts to discover pure contagion or interdependence amongst the Asian equity markets (China, India, Taiwan and South Korea) due to the shocks stemming from eleven major crises around the world. We apply wavelet decomposition in both its discrete and continuous forms to unveil the multi-horizon nature of co-movement, volatility and lead–lag relationship. We find that most of the earlier shocks were transmitted via excessive linkages or pure contagion, while the recent subprime crisis appears to have resulted mostly in fundamentals-based contagion or interdependence. This assertion is based mainly on the deepening fundamental integration particularly after the Asian financial crisis period. We also find the relatively dominating role of China and South Korea after this crisis.

Risk-return convergence in international public property markets

The main contribution of this study is to assess the risk-return convergence, as well as its relationship with the realised correlation, relative to the global public real estate, of 12 international developed public property markets during 1990–2011. Based on the Euclidean distance method we find that average risk-return distance of the sample markets thus computed has increased over time, implying a mean-variance divergence, albeit statistically insignificant. Most of the markets are more ‘divergent’, as well as being more volatile during the Asian financial crisis and Global financial crisis periods. There is some evidence that risk-return convergence is positively linked to increasing correlation with the global developed public real estate over the full study period. Finally, exchange rate variable has relatively little effect on the variation of the three distance measures. We conclude that the risk and return characteristics of the developed public property markets have not become less different from each other over time, implying that the idiosyncratic ‘real estate factor’ and ‘country factor’ of individual markets might have become more important in affecting the market integration over time. This analysis and evidence contributes to our understanding of the dynamics of international developed public property market integration in global investing.

South Korea's efforts for structural changes in corporate governance of large Korean business groups after the Asian financial crisis

This study introduces the characteristics of large Korean business groups (chaebols) and reviews various efforts toward structural changes in South Korea to improve the accounting system and corporate governance in the post Asian financial crisis period. Using descriptive trend analysis, this study also examines the consequences of the structural changes. Our findings show that major important financial indicators of the Korean economy have improved, implying that Korea's efforts seem to be somewhat successful. However, some sophisticated indicators, such as the magnitude of ownership discrepancy between cash flow rights and voting rights and the level of discretionary accruals, are shown to be rather deteriorated, indicating that the efforts toward structural changes have not fully resolved the fundamental problems prevalent in large Korean business groups.

Time‐varying correlations between stock and direct real estate returns

PurposeUnderstanding correlations between stock and direct real estate returns, which is the key factor that determines diversification benefits in a portfolio, helps formulate and implement better investors' asset allocation and risk management strategies. The past studies find that direct real estate returns have a low unconditionally (long‐run) correlation with the returns of equities. However, assuming that such correlation is constant throughout all periods is implausible. The purpose of this study is to test the time‐varying correlations of returns between general stocks and direct real estate.Design/methodology/approachThis study uses the dynamic conditional correlation (DCC) model, which is a simplified version of the multivariate generalised autoregressive conditional heteroskedasticity (GARCH) model, proposed by Engle to test the time‐varying correlations between stock and direct real estate returns in six markets, which include the USA, the UK, Ireland, Australia, Hong Kong and Singapore.FindingsThe empirical results show significant time‐varying effects in the conditional covariance between stock returns and direct real estate returns. The results vary across different real estate sub‐sectors, and across different countries. It is observed that the conditional covariance increases in the boom markets, but becomes weaker in the post‐crisis periods. The authors observed significant jumps in the conditional covariance between the two asset markets in Singapore and Hong Kong in the post‐1977 Asian Financial crisis periods and in the post‐2007 US Sub‐prime crisis periods.Originality/valueThe past studies find that direct real estate returns have a low unconditionally (long‐run) correlation with the returns of equities. However, assuming that such correlation is constant throughout all periods is implausible. This study fills in the gap by using the dynamic conditional correlation models to allow for time‐varying effects in the correlations between stock and real estate returns.

Economic freedom and bank efficiency nexus

The paper provides empirical evidence on the impact of economic freedom on bank efficiency. By employing the data envelopment analysis (DEA) method, we compute the efficiency of the Indonesian banking sector during the post–Asian financial crisis period of 1999–2008. The empirical findings from the DEA method indicate an increase in the efficiency of the Indonesian banking sector. We find a positive relationship between capitalisation and liquidity and bank efficiency. On the other hand, the results suggest a negative relationship between credit risk and overhead expenses and bank efficiency. The results indicate a positive relationship between business and monetary freedoms and bank efficiency, while the relationship between technical efficiency and financial freedom seems to be negative.

HAS INTERNATIONAL CAPITAL MOBILITY INCREASED IN ASIA? EVIDENCE FROM THE POST‐1997 FINANCIAL CRISIS PERIOD

This paper examines whether international capital mobility in Asia has increased after the 1997 Asian financial crisis by estimating the Feldstein‐Horioka (FH) coefficients using panel cointegration and dynamic OLS regressions. In the benchmark estimation, we find that the FH coefficients of ten Asian economies decrease significantly from 0.65 during the pre‐crisis period to 0.32 during the post‐crisis period. Furthermore, the coefficient for the post‐crisis period is less statistically significant than that for the pre‐crisis period. The extended model estimations with additional control variables controlling for the business cycle, different foreign exchange rate systems, and capital control also show the results which are consistent with the benchmark estimation results. Rolling regressions show a consistently declining trend of the FH coefficients in Asia during our sample period. These results provide consistent evidence, according to the FH proposition, of increasing international capital mobility in Asia during the post‐1997 Asian financial crisis period. (JEL F36, F37, F21)

The Performance of Newly Issued Stocks in Thailand

This paper aims to examine the relative long-run performance of the newly issued stocks in the Stock Exchange of Thailand (SET). The sample of 325 newly issued stocks in Stock Exchange of Thailand during the year 1990–2006 is filtered to 314 stocks by excluding the issues during the mid-1997 to 1998 Asian Financial Crisis period. 3-year and 5-year holding period returns of IPOs portfolio are compared with those of the matching firms. In addition to the event study, the time series cross-sectional regressions are employed to investigate the long-run overpriced of newly issued stocks when controlling for size and Book-to-Market Value ratio. The overall results show that, relative to that of the size-matched portfolio, the long-run performance of portfolio consist of was underperformed by approximately 15% and 29% for the three-year holding period portfolio and five-year holding period portfolio, respectively.

Exchange Rate Dynamics: The Case of US Dollar Exchange Rates Against Three Major Currencies in Asia

With the daily exchange rate against the U.S. dollar data, we found that the volatility of the value of Chinese Yuan is smallest when compared with the Japanese yen and Korean won during the normal period, the Asian financial crisis period and the recent global financial crisis period. During the two crisis periods, we observe a higher volatility for the Korean won compared to the Japanese yen, indicating the “flight to quality.” However, the difference in the volatility is much less during the recent global financial crisis period, implying the “flight to Japanese yen” is not as prevalent as before. We also found that the difference between cross rates and direct market rates for the won/yen rate are statistically significant during the two crisis periods. Although currency speculators and arbitrageurs may find the opportunity for profit, the size of transaction cost may matter.

Impact of financial shocks on Islamic banks

PurposeThe purpose of this paper is to provide empirical evidences on the impact of financial shocks on the Islamic banks vis‐a‐vis the conventional banks. Based on the Malaysian experience over two major financial crises, namely the 1997 Asian financial crisis and 2007 financial crisis, the study aims to test the validity of the proposition that the Islamic banks are more resilient to the financial shocks compared to the conventional banks.Design/methodology/approachFocusing on the Malaysian data covering three sub‐periods, namely, the 1997 Asian financial crisis period (July 1997‐September 1999), the non‐crisis period (October 1999‐June 2007) and the 2007 financial crisis period (July 2007‐September 2009), the study employs the impulse response functions and variance decomposition analysis based on the vector auto‐regression (VAR) method.FindingsThe results indicate that both the Islamic and conventional banking systems are vulnerable to financial shocks. This is contrary to the popular belief that the Islamic financial system is sheltered from the financial shocks due to its interest‐free nature.Research limitations/implicationsThe results of this study have important implications for the risk management practices of both the Islamic and conventional banks.Originality/valueThis paper contributes in providing the empirical evidence on the impact of financial shocks on the Islamic banks. To the authors' knowledge, there have been no studies comparing of the impacts of the two major financial crises on the Islamic banking sector.

The impact of subprime mortgage on correlation between stock and FX markets

Our researching period contains the American subprime mortgage crisis, an insignificant financial crisis and the Asian financial crisis periods. We analyse and compare the interrelations between the stock and Foreign Exchange (FX) markets in Taiwan by the daily data of stock prices and NTD/US exchange rates. The empirical results found that there is no effect on the long-term equilibrium between the stock and FX markets during the American subprime mortgage crisis. It also shows that, whether financial crisis occurs or not, there is no cointegration between the stock and FX markets. Furthermore, the results find that there exists bidirectional causality between the stock and FX markets among the American subprime mortgage crisis and the Asian financial crisis period. However, there is only unidirectional relationship from stock prices to exchange rates during insignificant financial crisis period. Such results imply that two financial crises do significantly affect the short-term interrelationships between the stock and FX markets and lead to more importance for the connection between two markets.

Health, education, and economic growth in East Asia

PurposeThe purpose of this paper is to examine empirically the sources of economic growth based on an augmented Mankiw, Romer, and Weil's model which considers human capital in the forms of both health and education for a group of East Asian economies including China.Design/methodology/approachEmpirical results are based on the analysis of a panel dataset from 1961 to 2007. Sub‐sample estimation for the post‐1997 Asian Financial Crisis period is also considered for comparison purposes.FindingsThe impact of the stock of health and education on economic growth is statistically significant for both the whole sample and sub‐sample period. However, the impact of investment in education on economic growth is a little “fragile”. The statistical results show that the statistical impact of health on economic growth is stronger than that of education. It seems that it is more plausible for the policymakers in East Asia to invest more in health than educational human capital.Originality/valueThis paper is one of the first empirical studies to analyze the effect of human capital in the form of both health and education on economic growth in East Asia.

Foreign direct investment and trade: The case of Vietnam

By making use of a gravity model, this paper examines the impact of FDI on exports, imports and net export of Vietnam. The empirical analysis presented in this paper is based on a recently released panel dataset involving Vietnam's 19 major trading partners for the period 1990–2007. The paper also considers the impact of FDI on trade during three sub-periods: the pre-Asian financial crisis, the post-Asian financial crisis and during the Asian financial crisis period. The empirical analysis reveals that a complementary relationship exists between FDI and exports and FDI and imports. While the impact of FDI on net-exports is insignificant during the full sample period, a significant positive relationship exists between net-exports and FDI in the post-Asian financial crisis period.