Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?

Fabian Lipinsky and Li Ong

No 2014/037, IMF Working Papers from International Monetary Fund

Abstract: Stock markets play a key role in corporate financing in Asia. However, despite their increasing importance in terms of size and cross-border investment activity, the region’s markets are reputed to be more “idiosyncratic” and less reliant on economic and corporate fundamentals in their pricing. Using a model that draws on international asset pricing and economic theory, as well as accounting literature, we find evidence of greater idiosyncratic influences in the pricing of Asia’s stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals. We also show proof of a significant relationship between the strength of implementation of securities regulations and the “noise” in stock pricing, which suggests that improvements in the regulation of securities markets in Asia could enhance the role of stock markets as stable and reliable sources of financing into the future.

Keywords: WP; IOSCO; business cycle; arbitrage pricing theory; Asian financial crisis; fundamentals; global financial crisis; idiosyncratic factors; integration; securities regulation; stock market; stock pricing; term structure of interest rates; Tokyo SE group; stock market return; Shenzhen SE; London SE group; market liquidity; stock market volatility; Asia's stock markets; Shanghai SE; Indonesia SE; Osaka SE; stock market capitalization; Santiago SE; Stock markets; Asset prices; Securities markets; Stocks; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 46
Date: 2014-02-26
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Citations: View citations in EconPapers (4)

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