Price and volatility behaviour of four Asian stock markets
The past ten years have witnessed many changes in the Asian economies and stock markets, particularly in the Four Tigers, Hong Kong, Singapore, South Korea and Taiwan. They enjoyed economic growth well above the world average during the late 1980s and early 1990s. There were sharp increases in their stock market capitalisations against the background of low growth and low interest rates in the US and European countries in the early 1990s. This coincided with the time when measures to liberalise these markets were implemented to allow or attract foreign direct investments in their stock markets. Then by mid 1997, both their economies and stock markets began to slump. This ten year time period thus provides a good opportunity to examine how such economic and institutional changes affected the price and volatility behaviour of the Four Tigers and their relationships with other markets. Overall, the findings of the thesis suggest that with the increase in foreign participation in the four individual markets, the influence of noise trading activities has been reduced through more and better informed trading. However, their relationships with three world major markets, the US, the UK and Japan, are not getting much stronger. There is no evidence to suggest that their prices are being increasingly led by the world markets, nor is their volatility becoming more sensitive to foreign news. Their price and volatility relationships with three regional markets, Thailand, Malaysia and Indonesia, were not particularly strong either, until recently, when the Asian financial crisis has made them more responsive to shocks from one another. The message to the governments of the Four Tigers is clear. Foreign direct equity investments have not destabilised their stock markets. Instead, the mismanagement of their own and/or their trading partners' economies should be held more responsible.