Economic Crisis and Investor Behaviour

57 Pages Posted: 22 Nov 2016

See all articles by Tolga Omay

Tolga Omay

Cankaya University

Perihan Iren

Zayed University

Date Written: 2016


This study investigates the effects of crises on domestic and foreign investors’ behaviours by utilizing a nonlinear approach. Considering the nonlinearity inherent in many financial variables, this study proposes an appropriate econometric modelling for analysing the investors’ behaviour, particularly during turbulent times. Specifically, STAR-STGARCH family models and generalized impulse response function analysis (GIRF) are employed to understand the different reactions of foreign and domestic investors at the Malaysian Stock Exchange market during the 1997 Asian crisis. The results of the model and the GIRF analysis have shown that foreign investors exhibited a herding behavior during the crisis and responded the shock more quickly than the domestic investors. When the same analysis is applied to understand the effects of the 2008 Subprime Mortgage Crisis in the Malaysian market, the behaviors of foreign and domestic investors are found to be very similar.

Keywords: STAR-STGARCH, Generalized Impulse Response Functions, 1997 Asian Crisis, 2008 Subprime Mortgage Crisis, Malaysian Stock Exchange, Foreign investors, Domestic investors

JEL Classification: C22, G1

Suggested Citation

Omay, Tolga and Iren, Perihan, Economic Crisis and Investor Behaviour (2016). Available at SSRN: or

Tolga Omay

Cankaya University ( email )


Perihan Iren (Contact Author)

Zayed University ( email )

P.O. Box 4783
Abu Dhabi
United Arab Emirates

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