Comparative analysis on the effects of the Asian and global financial crises on precious metal markets

The global financial crisis has vigorously struck major financial markets around the world, in particular in the developed economies since they have suffered the most. However, some commodity markets, and in particular the precious metal markets, seem to be unscathed by this financial downturn. This paper investigates therefore the nature of volatility spillovers between precious metal returns over fifteen years (1995-2010 period) with the attention being focused on these markets’ behavior during the Asian and the global financial crises. Daily closing values for precious metals are analyzed. In particular, the variables under study are the US$/Troy ounce for gold, the London Free Market Platinum price in US$/Troy ounce, the London Free Market Palladium price in US$/Troy once, and the Zurich silver price in US$/kg. The main sample is divided into a number of sub periods, prior to, during and after the Asian crisis. The aim of this division is to provide a wide and deep analysis of the behavior of precious metal markets during this financial event and of how these markets have reacted during times of market instability. In addition, this paper also looks at the effects of the global financial crisis from August 2007 to November 2010 using GARCH and EGARCH modeling. The main results show that there is clear evidence of volatility persistence between precious metal returns, a characteristic that is shared with financial market behavior as it has been demonstrated extensively by the existing literature in the area. In terms of volatility spillover effects, the main findings evidence volatility spillovers running in a bidirectional way during the periods; markets are not affected by the crises, with the exception of gold, that tends to generate effects in all other metal markets. However, there is little evidence in the case of the other precious metals generating any kind of influence on the gold market. On the other hand, there is little evidence of spillover effects during the two crisis episodes. Finally, the results from asymmetric spillover effects show that negative news/information have a stronger impact in these markets than positive news, again a characteristic that has been also exhibited by financial markets.     

The effects of news events on market contagion: Evidence from the 2007–2009 financial crisis

In this paper, we use the quantile regression technique along with coexceedance, a contagion measure, to assess the extent to which news events contribute to contagion in the stock markets during the crisis period between 2007 and 2009. Studies have shown that, not only the subprime crisis leads to a global recession, but the effects on the global stock markets have also been significant. We track the news events, both in the UK and the US, using the global recession timeline. We observe that the news events related to ad hoc bailouts of individual banks from the UK have a contagion effect throughout the period for most of the countries under investigation. This, however, is not found to be the case for the news events originating from the US. Our findings regarding the evidence of contagion effects in the UK reinforce the argument that spreads and contagion—an outcome of the risk perception of financial markets—are solely a result of the behaviour of investors or other financial market participants.     

Volatility spillovers and the effect of news announcements

We examine the effect of US and European news announcements on the spillover of volatility across US and European stock markets. Using synchronously observed international implied volatility indices at a daily frequency, we find significant spillovers of implied volatility between US and European markets as well as within European markets. We observe a stark contrast in the effect of scheduled versus unscheduled news releases. Scheduled (unscheduled) news releases resolve (create) information uncertainty, leading to a decrease (increase) in implied volatility. Nevertheless, news announcements do not fully explain the volatility spillovers, although they do affect the magnitude of volatility spillovers. Our results are robust to extreme market events such as the recent financial crisis and provide evidence of volatility contagion across markets.     

Reforms in Thai bank governance: The aftermath of the Asian financial crisis

This paper provides an empirical analysis of Thailand's bank governance reforms after the 1997 Asian financial crisis and then examines the stock market's response. Unlike the pre-crisis period, we find that the bank sector returns (or return volatilities) have become more Granger causal to the overall stock market in the post-crisis period. Announcements of bank governance reforms are also generally associated with significant change in bank sector returns. This adds to the proposition that improved bank governance is related to improved bank performance as measured by their bank stock returns.     

Common stochastic trends among Far East stock prices: Effects of the Asian financial crisis

This paper investigates empirically the change(s) in the long-run relationship(s) between the stock prices of eight Far East countries around the Asian financial crisis of 1997-98. Further tests are conducted to check the change in the influence of the Japanese and the US stock markets in the Far East Region before, during and after the crisis. Empirical investigation is conducted by means of rolling correlation coefficients, the Johansen multivariate cointegration method, causality tests and band spectrum regression. Results show significant long-run relationship(s) and linkage between the Far East markets before, during, and after the crisis. The most significant linkage and relationship are found during the crisis period. Results mostly indicate larger US influence in all periods but some evidence of increasing Japanese influence is also shown.     

Baltic stock markets and the financial crisis of 2008–2009

This study presents new evidence on stock market integration by investigating the linkages between developed European stock markets and emerging stock markets. We focus on three countries in the Baltic region, namely Estonia, Latvia and Lithuania with particular attention to the recent financial crisis of 2008–2009. The study is motivated by traditional stock market studies of integration, which show that developed stock markets are highly integrated, while emerging markets may be segmented. How integrated these emerging stock markets are in a crisis period with respect to the EUROSTOXX50 stock index is an empirical question investigated in this study. While the results of this study demonstrate that the Baltic stock markets were apparently segmented before the crisis, they were highly integrated during the crisis. The results of the variance decomposition analysis show that a large proportion of the forecast variance of the Baltic stock markets can be explained by the EUROSTOXX50 during the crisis. The results from the quantile regressions demonstrate that during the crisis the returns of the lowest quantile were most sensitive to the EUROSTOXX50 stock index. All these results imply less diversification benefits during crises when investors would need them the most.     

An empirical analysis of herd behavior in global stock markets

This paper examines herding behavior in global markets. By applying daily data for 18 countries from May 25, 1988, through April 24, 2009, we find evidence of herding in advanced stock markets (except the US) and in Asian markets. No evidence of herding is found in Latin American markets. Evidence suggests that stock return dispersions in the US play a significant role in explaining the non-US market’s herding activity. With the exceptions of the US and Latin American markets, herding is present in both up and down markets, although herding asymmetry is more profound in Asian markets during rising markets. Evidence suggests that crisis triggers herding activity in the crisis country of origin and then produces a contagion effect, which spreads the crisis to neighboring countries. During crisis periods, we find supportive evidence for herding formation in the US and Latin American markets.     

Do bears and bulls swim across oceans? Market information transmission between greater China and the rest of the world

This study investigates returns and volatilities transmission across Greater China’s four emerging stock markets and three developed international markets, Tokyo, London, and New York. Using daily open and close price data from 1994 to 2001, we provide empirical evidence that the overnight returns on all the Greater China stock indices can be estimated by using information from at least one of the three developed markets’ daytime returns. The contemporaneous return spillovers are in general unidirectional from more advanced major international markets to the Chinese markets. However, split-sample analysis suggests that there is also evidence of bi-directional return spillovers after the 1997 Asian financial crisis. We also find that there are no one-period lagged return spillover effects from the three advanced markets to the Chinese markets, except for Taiwan. Finally, Mainland China’s two stock markets are not affected by contemporaneous nor delayed “bad news”.     

IMF programs, financial and real sector performance, and the Asian crisis

This paper has three objectives. First, using a richer and more comprehensive set of IMF-related news than previous studies, we examine the impact of IMF-related news on both financial and real stock sector returns in Indonesia during the Asian crisis. Second, we draw lessons about financial and real sectoral patterns of adjustment in crisis countries, including whether and how IMF programs facilitate this adjustment. Third, we explore the interplay between IMF actions in crisis countries and the actions and responses of local authorities. To do so, not only do we account for the impact of news regarding IMF policy actions but also the government’s reaction to them and willingness to implement such policies, and the public sentiment about the implemented IMF programs and government policies. We discuss the policy implications of the findings.     

Interconnected multilayer networks: Quantifying connectedness among global stock and foreign exchange markets

This paper proposes a novel interconnected multilayer network framework based on variance decomposition and block aggregation technique, which can be further served as a tool of linking and measuring cross-market and within-market contagion. We apply it to quantifying connectedness among global stock and foreign exchange (forex) markets, and demonstrate that measuring volatility spillovers of both stock and forex markets simultaneously could support a more comprehensive view for financial risk contagion. We find that (i) stock markets transmit the larger spillovers to forex markets, (ii) the French stock market is the largest risk transmitter in multilayer networks, while some Asian stock markets and most forex markets are net risk receivers, and (iii) interconnected multilayer networks could signal the financial instability during the global financial crisis and the COVID-19 crisis. Our work provides a new perspective and method for studying the cross-market risk contagion.     

Unobservable shocks as carriers of contagion

We propose an identified structural GARCH model to disentangle the dynamics of financial market crises. We distinguish between the hypersensitivity of a domestic market in crisis to news from foreign non-crisis markets, and the contagion imported to a tranquil domestic market from foreign crises. The model also enables us to connect unobserved structural shocks with their source markets using variance decompositions and to compare the size and dynamics of impulses during crises periods with tranquil period impulses. To illustrate, we apply the method to data from the 1997–1998 Asian financial crisis which consists of a complicated set of interacting crises. We find significant hypersensitivity and contagion between these markets but also show that links may strengthen or weaken. Impulse response functions for an equally-weighted equity portfolio show the increasing dominance of Korean and Hong Kong shocks during the crises and covariance responses demonstrate multiple layers of contagion effects.     

Do controlling shareholders' expropriation incentives imply a link between corporate governance and firm value? Theory and evidence

We develop and test a model that investigates how controlling shareholders' expropriation incentives affect firm values during crisis and subsequent recovery periods. Consistent with the prediction of our model, we find that, during the 1997 Asian financial crisis, Asian firms with weaker corporate governance experience a larger drop in their share values but, during the post-crisis recovery period, such firms experience a larger rebound in their share values. We also find consistent evidence for Latin American firms during the 2001 Argentine economic crisis. Our results support the view that controlling shareholders' expropriation incentives imply a link between corporate governance and firm value.     

Are stock market crises contagious? The role of crisis definitions

Financial contagion studies generally examine whether co-movement between markets increases during a crisis. We use a flexible co-movement measure to examine how conclusions of such analyses depend on the sample chosen as the ‘crisis’. To this end, we analyse stock market co-movement during the 1997 Asian crisis and the 2007 global financial crisis for all possible source countries and for all possible time periods or extreme return quantiles. This way we account for the main crisis dating approaches adopted in the literature. Our results suggest there is no clear relationship between excess co-movement and commonly used crisis samples.     

Volatility spillover in the foreign exchange market: the Indian experience

We find evidence of significant volatility co-movements and/or spillover from different financial markets to the forex market in India. Among a large number of variables examined, volatility spillovers from domestic stock, government securities, overnight index swap, Ted spread and international crude oil markets to the foreign exchange market are found to be significant. There is evidence of asymmetric reactions in the forex market volatility. Comparisons between pre-crisis and post-crisis volatility indicate that the reform measures and changes in financial markets microstructure during the crisis period had significant impact on volatility spillover. During the post-crisis period, the lagged volatility component that represents persistent or fundamental changes had significant spillover effect on forex volatility, rather than the temporary shocks component. There is evidence of a decline in the asymmetric response in the forex volatility during the post-crisis period in India.     

Investor wealth,the IMF,and the Asian crisis

This study further investigates the impact of IMF actions on stock markets during the Asian crisis. Extending two earlier studies by Kho and Stulz (2000) and Evrensel and Kutan (2007), we investigate the long-term shareholder wealth impact of IMF actions and programs on both financial and real sector returns in the stock markets of Thailand, Indonesia, and Korea. We perform a series of tests employed in Cornett and Tehranian (1989, 1990) that incorporate heteroscedasticity across sectors and contemporaneous dependence of the disturbances. The findings indicate that IMF actions regarding liquidity disbursement or liquidity concerns in markets are the most important events affecting abnormal returns and hence investor wealth in both real and financial sectors. However, the response of the financial sector to IMF actions is much stronger than that of the real sector. In addition, the results suggest moral hazard effects during the Asian crisis in all the three countries.     

Foreign exchange market efficiency under recent crises: Asia-Pacific focus

The Asia-Pacific region’s currency markets are generally efficient within-country when tested using the 30 and 31 cointegration technique whereas market efficiency fails to hold when tested using Fama’s (1984) conventional regression. Using the Pilbeam and Olmo (2011) model, we reconcile these conflicting findings. The Pilbeam and Olmo (2011) model confirms within-country market efficiency. It further confirms that free-float currency markets are more resilient than managed-float currency markets among 12 Asia-Pacific economies. From the across-country perspective, the foreign exchange markets are mostly efficient and the results show that the 1997–1998 Asian financial crisis was a more disturbing event than the 2008–2009 global financial crisis in the region.     

A study of cointegration and variance decomposition among national equity indices before and during the period of the Asian financial crisis

This study uses a cointegration and variance decomposition analysis to examine the linkages among the stock markets of 12 Asia–Pacific countries, before and during the period of the Asian financial crisis. Johansen (1988) multivariate cointegration and error-correction tests demonstrate evidence in support of the existence of cointegration relationships among the national stock indices during, but not before, the period of financial crises. In the recent crisis, the relationship within the South-East Asian countries seems to be stronger than that within the North-East Asian countries. The variance decomposition reveals that the ‘degree of exogeneity’ for all indices has been reduced, implying that no countries are ‘exogenous’ to the financial crisis. In addition, Granger’s causality test suggests that the US market still ‘causes’ some Asian countries during the period of crisis, reflecting the US market’s persisting dominant role.     

基于SPV制度缺陷看次贷危机后金融信用制度的重建

美国的次贷危机起源于资产证券化,而资产证券化的核心是特殊目的机构(SPV)。本文从SPV在次贷证券化中的功能构建及其制度设计中存在的缺陷出发,分析次贷危机发生的根源,进而提出后危机时代重建金融信用制度的基本原则和主要内容,以提升金融市场效率,防范金融风险。     

WHY DO STOCK PRICES DECLINE IN RESPONSE TO EMPLOYEE LAYOFFS? UK EVIDENCE FROM THE 2008 GLOBAL FINANCIAL CRISIS

Employee layoff decisions made during adverse economic conditions are expected to signal poor investment opportunities, but layoffs undertaken during prosperous markets should be efficiency enhancing. We examine layoffs during the global financial crisis of 2008 and compare this with an earlier period of economic prosperity. We find a positive market reaction to layoffs during rising financial markets but stock price declines following employee layoffs during the 2008 financial crisis. These price effects occur irrespective of the stated reason for the layoff and the industry of the announcing firm, and are mirrored in our robustness test of an earlier period.