Assessing the effects of the global financial crisis on the east Asian equity markets

Abstract

This chapter investigates the transmission mechanism of the Global Financial Crisis which originated in the United States to the East Asian equity markets, including the developed markets of Hong Kong, Japan, and Singapore, and the emerging markets of Malaysia, Thailand, and Taiwan, and the frontier market of Vietnam. To test for the transmission mechanism, we employ the constant conditional correlation (CCC) and the dynamic conditional correlation (DCC) based on the MGARCH model to estimate the time-varying correlations between the United States an equity markets. Our empirical findings suggest that the Global Financial Crisis transmitted shocks to these markets at varying intensities over time, particularly to Hong Kong and Singapore during the pre-crisis period, and to Japan and Vietnam during the crisis period. In addition, the results show that almost all the East Asian markets reveal higher correlations to other markets in the region than the United States even during the crisis period. Finally, the crisis is attributed to enhancing the correlations between the frontier market toward regional and global markets. © 2014 Elsevier Inc. All rights reserved.