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Asia's Stock Markets: Are There Crouching Tigers and Hidden Dragons?

47 Pages Posted: 19 Mar 2014  

Li Ong

International Monetary Fund (IMF)

Fabian Lipinsky

International Monetary Fund (IMF)

Date Written: February 2014

Abstract

Stock markets play a key role in corporate financing in Asia. However, despite their increasing importance in terms of size and cross-border investment activity, the region’s markets are reputed to be more “idiosyncratic” and less reliant on economic and corporate fundamentals in their pricing. Using a model that draws on international asset pricing and economic theory, as well as accounting literature, we find evidence of greater idiosyncratic influences in the pricing of Asia’s stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals. We also show proof of a significant relationship between the strength of implementation of securities regulations and the “noise” in stock pricing, which suggests that improvements in the regulation of securities markets in Asia could enhance the role of stock markets as stable and reliable sources of financing into the future.

Keywords: Stock markets, Asia, Stock prices, Foreign investment, Securities regulations, Pricing policy, Developed countries, Emerging markets, Cross country analysis, Economic models, arbitrage pricing theory, Asian financial crisis, fundamentals, global financial crisis, idiosyncratic factors, integration, IOSCO, stock pricing, term structure of interest rates., stock exchange, stock returns, financial markets, financial sector, stock index, bond, stock market capitalization, local stock markets, government bond, stock market index, financial economics, stock market volatility, stock market development, stock market integration, government bond yield, national stock exchange, financial system, equit

JEL Classification: G11, G12, G14, G15, G18

Suggested Citation

Ong, Li and Lipinsky, Fabian, Asia's Stock Markets: Are There Crouching Tigers and Hidden Dragons? (February 2014). IMF Working Paper No. 14/37. Available at SSRN: https://ssrn.com/abstract=2411585

Li Ong

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Fabian Lipinsky

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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