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

WenShwo Fang and Stephen Miller

No 2002-30, Working papers from University of Connecticut, Department of Economics

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.

Pages: 25 pages
Date: 2002-09
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ifn and nep-rmg
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2002-30

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