Information Flows During the Asian Crisis: Evidence from Closed-End Funds

58 Pages Posted: 13 Dec 2005

See all articles by Benjamin H. Cohen

Benjamin H. Cohen

Bank for International Settlements (BIS)

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: April 2001

Abstract

A salient feature of the Asian crisis of 1997 was a collapse of stock markets that took place over several months. The dynamics of this collapse raises the question of what information was driving the markets. This paper examines a key aspect of this question: did information flow from the domestic Asian markets to overseas markets, or vice versa? We test for the direction of this information flow by comparing daily returns in several Southeast Asian equity markets with daily returns on US-based closed-end funds that invest in those markets, exploiting the fact that there is no overlap between the trading hours in the two regions. We find that while information flows between local and US markets tended to be roughly evenly balanced before the crisis, US market returns assumed a more important role during the crisis. This is the case both for the level of daily returns and for the volatility of those returns. We also find that fund returns were more closely tied to broad US market returns during the crisis period. This suggests that the shift in causation between the US and Asia reflected a greater role for US market sentiment, rather than for the news that became known during US trading hours.

JEL Classification: G15, G14

Suggested Citation

Cohen, Benjamin H. and Remolona, Eli M., Information Flows During the Asian Crisis: Evidence from Closed-End Funds (April 2001). EFMA 2001 Lugano Meetings, BIS Working Paper No. 97, Available at SSRN: https://ssrn.com/abstract=264625 or http://dx.doi.org/10.2139/ssrn.264625

Benjamin H. Cohen (Contact Author)

Bank for International Settlements (BIS) ( email )

Basel
Switzerland

Eli M. Remolona

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

IFC 2 Bldg, 78/F
Central
Hong Kong
Hong Kong
+852 2982 7150 (Phone)
+852 2982 7123 (Fax)

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