The Persistence of Capital Inflows and the Behaviour of Stock Prices in East Asia Emerging Markets: Some Empirical Evidence

Lucio Sarno and Mark Taylor

No 2150, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine the view that the recent East Asian crisis was precipitated by bursting asset price bubbles which had been fuelled by strong capital inflows which were largely the result of a moral hazard problem in financial intermediation, and was exacerbated by a vicious cycle of asset price deflation and incipient and actual capital flight. We find evidence of stock market bubbles in all East Asian economies examined, although not in Australia. We examine various categories of capital flows to these countries and find, in particular, relatively high reversible components in portfolio flows to East Asian economies.

Keywords: Asset Market Bubbles; Capital Flows; East Asian crisis; Emerging Markets (search for similar items in EconPapers)
JEL-codes: E44 F20 F34 G1 (search for similar items in EconPapers)
Date: 1999-05
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Citations: View citations in EconPapers (8)

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