Stock prices as a leading indicator of the East Asian financial crisis

S Broome, B Morley

Research output: Contribution to journalArticle

11 Citations (Scopus)
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Abstract

Using a basic monetary model, we assess the effectiveness of stock prices as a leading indicator of the East Asian currency crisis in 1997 and 1998. Stock prices are incorporated into a monetary model, through the wealth effect postulated by Friedman [J. Pol. Econ. 96 (1988) 221]. In addition to the domestic stock price, we also incorporate the stock prices of Hong Kong, China and Japan. Using monthly data, the results indicate that the domestic stock price, the Hong Kong stock price and particularly US prices are significant leading indicators of the crisis. Causality tests suggest evidence of bi-causality between the stock markets and foreign exchange markets.
Original languageEnglish
Pages (from-to)189-197
Number of pages9
JournalJournal of Asian Economics
Volume15
Issue number1
DOIs
Publication statusPublished - Feb 2004

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