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Book part
Publication date: 24 October 2013

Bang Nam Jeon and Ji Wu

This chapter examines how foreign banks respond to domestic monetary policy in host countries during crisis periods, in particular, the response shown toward the Asian financial…

Abstract

This chapter examines how foreign banks respond to domestic monetary policy in host countries during crisis periods, in particular, the response shown toward the Asian financial crisis of 1997–1999 and the global financial crisis of 2008–2009. By observing 283 domestic and foreign banks in seven emerging Asian economies, we find that foreign banks are slower than domestic banks in adjusting the growth of their loans to changes in host monetary policy. This inertia by foreign banks is found to be more pronounced in the recent 2008–2009 global crisis than in the 1997–1999 Asian regional crisis, suggesting that the buffering/hampering effects of foreign banks on the effectiveness of the domestic monetary policy transmission mechanism become stronger in a recent global crisis originating from outside Asia than a regional crisis imploded within Asia a decade earlier. We also find that foreign banks’ lower sensitivity than domestic banks to host monetary policy during the crisis periods is heterogeneous, depending on factors such as the extent of the adverse impact of crises on parent banks, the scope of business operation by parent banks, and foreign banks’ mode of entry into host banking markets.

Details

Global Banking, Financial Markets and Crises
Type: Book
ISBN: 978-1-78350-170-0

Keywords

Book part
Publication date: 8 March 2011

Yushi Yoshida

We investigate whether or not the effects of the subprime financial crisis on 12 Asian economies are similar to those of the Asian financial crisis by examining volatility…

Abstract

We investigate whether or not the effects of the subprime financial crisis on 12 Asian economies are similar to those of the Asian financial crisis by examining volatility spillovers and time-varying correlation between the US and Asian stock markets. After pretesting volatility causality and constancy of correlation, we estimate an appropriate smooth-transition correlation VAR-GARCH model for each Asian stock market. First, the empirical evidence indicates stark differences in stock market linkages between the two crises. The volatility causality comes from the crises-originating country. Volatility in Asian stock markets Granger-caused volatility in the US market during the Asian crisis, whereas volatility in the US stock market Granger-caused volatility in Asian stock markets during the subprime crisis. Second, decreased correlations during the period of financial turmoil were observed, especially during the Asian financial crisis. Third, the estimated points of transition in the correlation are indicative of market participants’ awareness of the ensuing stock market crashes in July 1997 and in September 2008.

Details

The Evolving Role of Asia in Global Finance
Type: Book
ISBN: 978-0-85724-745-2

Keywords

Book part
Publication date: 15 August 2007

Bill Francis, Iftekhar Hasan and Christos Pantzalis

This study provides evidence on the importance of operational hedges in foreign-exchange risk management, an issue that has been largely ignored in the literature. One possible…

Abstract

This study provides evidence on the importance of operational hedges in foreign-exchange risk management, an issue that has been largely ignored in the literature. One possible reason for the absence of empirical evidence in the literature may be related to the difficulty in devising the appropriate measures of a firm's ability to construct operating hedges. We utilize measures of the structure of an MNC's foreign subsidiary network as proxies of the firm's ability to devise operational hedges and examine their relationship to exposure coefficients computed prior to and during the 1997–1998 Asian currency crisis. Our results show that the mean exposure during the Asian crisis period was significantly higher than the pre-crisis period. In addition, the mean of the absolute change in the exposure of MNCs that only operate in the Asian crisis region was significantly higher than that of MNCs without operations in the crisis region. We find a strong relationship between our proxies for ability to construct operating hedges and exchange-rate exposure measures both prior to the crisis and during the crisis. An even stronger association between exposure and measures of the MNC network structure is found for the sub-sample of MNCs that have some operations in the Asian crisis region. Similar results are obtained when the relationship is examined separately for “net importers” (MNCs with positive exposures) and “net exporters” (MNCs with negative exposures). Overall, our results are consistent with the notion that operational hedges significantly reduce a firm's exposure to foreign-exchange risk.

Details

Issues in Corporate Governance and Finance
Type: Book
ISBN: 978-1-84950-461-4

Article
Publication date: 11 September 2017

Deepti Ahuja and Venkatesh Murthy

The purpose of this study is to examine the cyclical pattern of social expenditure during 1980-2012 for a set of Asian countries. The extant literature available so far has…

Abstract

Purpose

The purpose of this study is to examine the cyclical pattern of social expenditure during 1980-2012 for a set of Asian countries. The extant literature available so far has captured the cyclicality of fiscal policy only for member countries of the Organization for Economic Co-operation and Development and for Latin American countries. Moreover, previous studies have largely ignored Asian countries.

Design/methodology/approach

The analysis used panel data from global macro-databases of the International Monetary Fund, Statistics of public expenditure for economic development and Asian Development Bank. The cyclical components of social spending (health, education, and social protection) and GDP were determined by using the Hodrick-Prescott Filter. A positive (negative) correlation indicates procyclical (countercyclical) fiscal policy. In line with the existing literature on fiscal cyclicality (Gavin and Perotti, 1997; Lane, 2003; Frankel et al., 2013) that has examined the behavior of fiscal policy over the business cycle, regression analysis is used to examine the impact of political and institutional factors on the behavior of social spending.

Findings

It was found that government social expenditure is procyclical across Asian countries during 1980-2012. However, during the past decade, emerging Asian countries have been able to shift from procyclical to countercyclical social spending. This shows that they had taken several initiatives to boost expenditure in the social sector – be it in social protection, health, or education services. The significant determinant of social cyclicality is the quality of institutions, which could help the government to increase fiscal deficit during recessions and repay the debt during economic booms. However, to some extent, their countercyclical action is restrained by the high accumulated level of public debt.

Originality/value

In the context of the Asian region, it is important to understand the cyclical pattern of social policy for several reasons. It has been said that crises offer an opportunity for countries to rethink their social policy to achieve more sustained and equitable development. By studying the social spending behavior, the authors can see whether Asian countries were able to grab the opportunity for reshaping their social and economic agenda after the Asian financial crisis.

Details

International Journal of Social Economics, vol. 44 no. 9
Type: Research Article
ISSN: 0306-8293

Keywords

Book part
Publication date: 23 December 2005

Bang Nam Jeon

This paper provides evidence of financial linkages across countries as a channel of contagion of currency crises in the case of the 1997 Asian crisis using high-frequency data…

Abstract

This paper provides evidence of financial linkages across countries as a channel of contagion of currency crises in the case of the 1997 Asian crisis using high-frequency data, focusing on the hardest hit countries in the region: Thailand, Indonesia, Malaysia, and Korea. Stock markets in the region were found to play an important role in transmitting initial and local shocks beyond its country of origin to other emerging economies during the 1997 crisis. Stock market linkages seem to have contributed importantly to the quick and wide-scale contagion of the ensuing exchange rate crisis across countries in the 1997 Asian crisis episode.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

Article
Publication date: 7 August 2007

Willem F.C. Verschoor and Aline Muller

This paper aims to increase understanding of the (time‐varying) relationship between exchange rates and stock prices at the individual firm level. Rather than analyzing the impact…

3502

Abstract

Purpose

This paper aims to increase understanding of the (time‐varying) relationship between exchange rates and stock prices at the individual firm level. Rather than analyzing the impact of exchange rate movements on firm value by regressing multinationals’ stock returns on exchange rate changes, it is proposed to examine the impact of increased exchange rate variability on the stock return volatility of US multinationals by focusing on the 1997 Asian financial turmoil.

Design/methodology/approach

In a first step, it is investigated whether the enhanced uncertainty about the future performance of US multinationals active in Asia resulted in an increased stock return variability. The second step separates the impact of increased exchange rate variability on the stock return volatility of US multinationals into systematic and diversifiable risk.

Findings

It is found that the stock return variability of US multinationals increases significantly in the aftermath of the financial turmoil. In conjunction with this increase in total volatility, there is also an increase in market risk (beta) for US multinationals. Moreover, trade‐ and service‐oriented industries appear to be particularly sensitive to these changing exchange rate conditions.

Practical implications

If the additional risk imparted to exposed firms from increased exchange rate variability is systematic in nature, it will affect the required rate of (equity) return (i.e. investors demand higher returns for holding the firm's shares). Consequently, this effect of exchange rate fluctuations increases the cost of (equity) capital for US multinationals with real foreign operations in the crisis countries.

Originality/value

This paper demonstrates the impact of increased exchange risk on stock return volatility and market risk.

Details

Managerial Finance, vol. 33 no. 9
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 June 2000

Kwong‐Leung Tang

Examines work investigating the impact of the crisis on social welfare policies two Asian countries — Hong Kong and Korea, and argues that these two states were not prepared for…

1432

Abstract

Examines work investigating the impact of the crisis on social welfare policies two Asian countries — Hong Kong and Korea, and argues that these two states were not prepared for the crisis. States that Hong Kong is adopting a neoliberal approach to social welfare, contrasting this with Korea taking unprecedented steps to restructure the social security system, after its economy nearly collapsed, taking a more developmental approach to social policy. Posits that only time will tell whether Korea’s momentum of change can be sustained, while in Hong Kong social security policy will still be dictated by a neoliberal agenda in the near future.

Details

International Journal of Sociology and Social Policy, vol. 20 no. 5/6
Type: Research Article
ISSN: 0144-333X

Keywords

Book part
Publication date: 23 December 2005

Xuan Vinh Vo and Kevin James Daly

The study investigates the interdependence of the stock markets between the following countries Hong Kong, Japan, Korea, Taiwan, Indonesia, Malaysia, Philippines, Singapore…

Abstract

The study investigates the interdependence of the stock markets between the following countries Hong Kong, Japan, Korea, Taiwan, Indonesia, Malaysia, Philippines, Singapore, Thailand and the advanced stock markets of Australia, Germany, United Kingdom and the United States. Using data from 1994 to 2003 the paper employs both correlation, causality and cointegration analysis to describe the behaviour of the above stock market indices over the period pre and post the 1997 Asian Financial Crises. The paper investigates both the short- and long-run relationships between the Asian markets and the markets of selected advanced industrial countries.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

Book part
Publication date: 23 December 2005

Shu-Ling Lin

The current work studies the cause, process, and effects of financial reform in 10 countries in Eastern Asia for the period of 1993–2002, especially focusing upon comparisons…

Abstract

The current work studies the cause, process, and effects of financial reform in 10 countries in Eastern Asia for the period of 1993–2002, especially focusing upon comparisons between pre- and post-Asia financial crisis. This study utilizes Mann–Whitney U test and Intervention Analysis to explore the different effects of the changes of GDP, stock index, exchange rate, CPI index, and the changes of the unemployment rate before and after the Asia financial crisis. It shows the consistent relationship between stock index, exchange rate, CPI index, and the changes of unemployment rate.

Details

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century
Type: Book
ISBN: 978-0-76231-258-0

Article
Publication date: 21 August 2017

Trung Hoang Bao and Cesario Mateus

The purpose of this paper is to examine the impact of Federal Open Market Committee (FOMC) announcements, which includes information about the targeted Federal fund rate and…

Abstract

Purpose

The purpose of this paper is to examine the impact of Federal Open Market Committee (FOMC) announcements, which includes information about the targeted Federal fund rate and revision to the future path of monetary policy on Southeast Asian stock market performance.

Design/methodology/approach

This paper has used a sample of five national equity market indexes over the period 1997-2013 that covers 132 scheduled FOMC meetings. The authors have developed the model of Wongswan (2009) and Kontonikas et al. (2013) to quantify target surprise and path surprise.

Findings

The results first show that all the stock markets examined do respond to information in FOMC announcements. Second, the target Federal fund rate has more impact on Southeast Asian stocks performance than information about the future path of monetary policy does. Third, different Southeast Asian equity markets respond similarly to targeting the Federal fund rate, while the responses to monetary policy differ from each other. Fourth, the response of each country to the FOMC announcement is not statistically different in the two periods of financial crisis.

Research limitations/implications

Southeast Asian financial markets are increasingly highly correlated to the US market. The main channel in which FOMC announcement has impact on Southeast Asian stock markets is through US price transmission. This is the case of foreign firms borrowing from the US market. Then, an increase in interest rate, which means that the cost of financing increases, will lower firm equity value.

Originality/value

The understanding of the response of the Southeast Asian stock markets to target surprise and path surprise, and the impact of each surprise in different time periods, would be important to investors and encourage further discussion amongst academics in Southeast Asia, where stock markets have been emerging in recent years.

Details

China Finance Review International, vol. 7 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

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