The Impact of External Shocks on Stock Prices in the East Asian Domestic Banking Sector
Risk Management Post Financial Crisis: A Period of Monetary Easing
ISBN: 978-1-78441-027-8, eISBN: 978-1-78441-026-1
Publication date: 1 October 2014
Abstract
This chapter examines the impact of price fluctuations in foreign stock markets on the stock prices of domestic banks in Korea, Malaysia, Singapore, and Thailand. Some studies have argued that the 2007–2009 global financial crisis (GFC) affected domestic banks less in East Asia, even though the supporting evidence is rather limited. Employing a multinomial logit model, we estimate how changes in the United States and Japanese stock markets affected the banking sectors in the sampled countries before the 1997 Asian financial crisis, and before and during the more recent GFC. We interpret the number of banks in a given country that experienced a large price shock on the same day (or “coexceedance”) as shocks to the domestic banking sector. The results suggest that fluctuations in foreign stock market indices exerted a larger impact on the prices of East Asian banking stocks during the 2000s than during the 1990s. In addition, although the shocks brought about by the deterioration of foreign stock markets were significant before the GFC, both increases and decreases in foreign stock prices significantly affected the banking sectors of the respective countries during the crisis. Lastly, we conclude that increasing foreign capital flows and foreign assets and liabilities greatly influenced domestic banking systems in East Asia during the 2000s.
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Acknowledgements
Acknowledgments
Masahiro Inoguchi would like to thank Kaliappa Kalirajan, Jenny Corbett, Hal Hill, Takatoshi Ito, Masahiro Kawai, Ryuzo Miyao, Sanae Ohno, and Takeshi Hoshikawa for useful suggestions and discussion. Thanks also to attendees at the 2009 Modern Monetary Economics Conference held in Kobe, the 26th International Conference of the American Committee for Asian Economic Studies held in Kyoto in 2010, the June 2010 Japanese Economic Association Meeting, the Australia–Japan Research Centre 30th Anniversary Conference held at the ANU in March 2011, and the 40th Australian Conference of Economists in 2011 for their helpful comments. All errors in this chapter are solely mine. This research was supported in part by the Japanese MEXT KAKENHI Grant Numbers: 21730267 and 25380413.
Citation
Inoguchi, M. (2014), "The Impact of External Shocks on Stock Prices in the East Asian Domestic Banking Sector", Risk Management Post Financial Crisis: A Period of Monetary Easing (Contemporary Studies in Economic and Financial Analysis, Vol. 96), Emerald Group Publishing Limited, Leeds, pp. 97-151. https://doi.org/10.1108/S1569-375920140000096004
Publisher
:Emerald Group Publishing Limited
Copyright © 2014 Emerald Group Publishing Limited