Dynamic Effects of Currency Depreciation on Stock Market Returns during the Asian Financial Crisis

WenShwo Fang and Stephen Miller

No 2002-31, Working papers from University of Connecticut, Department of Economics

Abstract: The current international integration of financial markets provides a channel for currency depreciation to affect stock prices. Moreover, the recent financial crisis in Asia with its accompanying exchange rate volatility affords a case study to examine that channel. This paper applies a bivariate GARCH-M model of the reduced form of stock market returns to investigate empirically the effects of daily currency depreciation on stock market returns for five newly emerging East Asian stock markets during the Asian financial crisis. The evidence shows that the conditional variances of stock market returns and depreciation rates exhibit time-varying characteristics for all countries. Domestic currency depreciation and its uncertainty adversely affects stock market returns across countries. The significant effects of foreign exchange market events on stock market returns suggest that international fund managers who invest in the newly emerging East Asian stock markets must evaluate the value and stability of the domestic currency as a part of their stock market investment decisions.

Keywords: Asian financial crisis; stock market returns; currency depreciation; bivariate GARCH-M (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2002-10
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk, nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://media.economics.uconn.edu/working/2002-31.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2002-31

Access Statistics for this paper

More papers in Working papers from University of Connecticut, Department of Economics University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063. Contact information at EDIRC.
Bibliographic data for series maintained by Mark McConnel ().