East Asia and Europe during the 1997 Asian collapse: a clinical study of a financial crisis
- Creators
- Chakrabarti, Rajesh
- Roll, Richard
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 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. Exchange rate volatility played a major role.
Additional Information
© 2002 Elsevier. Available online 14 November 2001. The authors gratefully acknowledge constructive comments and suggestions from Sebastian Edwards, Yasushi Hamao, Andrey Pavlov, Avanidhar Subrahmanyam, John Wald and participants in the Georgia Tech/Fortis international finance conference and the 2000 European Financial Management Meetings in Athens.Additional details
- Eprint ID
- 95053
- Resolver ID
- CaltechAUTHORS:20190426-145911964
- Created
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2019-04-29Created from EPrint's datestamp field
- Updated
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2021-11-16Created from EPrint's last_modified field