East Asia and Europe During the 1997 Asian Collapse: A Clinical Study of a Financial Crisis

Rajesh Chakrabarti and Richard Roll

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: Asian stock markets are compared with European markets before and during the 1997 Asian crisis. The clinical issue is whether regional inter-dependence became larger around the crisis, fomenting investor fears of contagion and reducing asset values because of lower diversification potential. Statistical measures are developed to aid in this inquiry. We find that European and East Asian countries were not susceptible to volatility contagion in the pre-crisis era but that susceptibility increased significantly in Asia with the onset of the crisis. Covariances, correlations, and volatilities increased from the pre-crisis to the crisis period in both regions, but the percentage increases were much larger in Asia. Diversification potential was better in Asia than in Europe before the crisis; this was reversed during the crisis. The observed decline in diversification potency in Asia is reason enough for large declines in asset values though one cannot prove, of course, that it was the cause rather than the effect of the crisis.

Date: 2002-01-30
References: Add references at CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
https://www.escholarship.org/uc/item/09f9j331.pdf;origin=repeccitec (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:cdl:anderf:qt09f9j331

Access Statistics for this paper

More papers in University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().