Diversification, Rationality and the Asian Economic Crisis

Posted: 9 Aug 2009 Last revised: 5 Jan 2011

See all articles by Robert G. Bowman

Robert G. Bowman

University of Auckland - Department of Accounting and Finance

Kam Fong Chan

The University of Western Australia; Financial Research Network (FIRN)

Matthew R. Comer

First New Zealand Capital

Date Written: August 6, 2009

Abstract

We examine the reaction of world equity markets to the 1997 Asian Crisis. Correlations across the markets increased dramatically during the economic crisis but only during a relatively short period around the crisis. After the crisis, the benefits of international diversification improved substantially but did not return to the levels existing before the crisis. We then examine whether the market reactions to the crisis can be explained by economic fundamentals. We find that virtually all of the variation in returns across markets can be explained by these factors. The reaction of markets to the Asian Crisis was rational.

Keywords: Asian Crisis, Contagion, Economic fundamentals, International diversification

JEL Classification: G11, G15, G34, F40

Suggested Citation

Bowman, Robert G. and Chan, Kam Fong and Comer, Matthew R., Diversification, Rationality and the Asian Economic Crisis (August 6, 2009). Pacific-Basin Finance Journal, Vol. 18, pp. 1-23, 2010. Available at SSRN: https://ssrn.com/abstract=1445193

Robert G. Bowman (Contact Author)

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

Kam Fong Chan

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Matthew R. Comer

First New Zealand Capital ( email )

PO Box 5333
Wesley Street
Auckland
New Zealand

Register to save articles to
your library

Register

Paper statistics

Abstract Views
382
PlumX Metrics