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Stock return process and expected depreciation over the Asian financial crisis

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  • Wenshwo Fang

Abstract

The Asian financial crisis has been characterized by unstable stock and foreign exchange markets in Asia since July 1997. This paper postulates that expected depreciation helps to predict stock market volatility over the turmoil period. Using Taiwan daily data as an example, the estimated ARCH(3)-M model documents significantly a negative depreciation effect with no heteroscedasticity in the stock return process, suggesting that the expected depreciation is a cause of the changing variance. The evidence further shows that the stock market volatility has increased during the period of the Asian financial crisis 1997-1998, but the corresponding time-varying risk premium has remained unchanged.

Suggested Citation

  • Wenshwo Fang, 2001. "Stock return process and expected depreciation over the Asian financial crisis," Applied Economics, Taylor & Francis Journals, vol. 33(7), pages 905-912.
    • Handle: RePEc:taf:applec:v:33:y:2001:i:7:p:905-912
    DOI: 10.1080/00036840122487
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    Cited by:

    1. Abdul Hakim & Michael McAleer, 2010. "Modelling the interactions across international stock, bond and foreign exchange markets," Applied Economics, Taylor & Francis Journals, vol. 42(7), pages 825-850.
    2. WenShwo Fang & Stephen M. Miller, 2002. "Currency Depreciation and Korean Stock Market Performance during the Asian Financial Crisis," Working papers 2002-30, University of Connecticut, Department of Economics.
    3. Yung-Shi Liau & Jack Yang, 2008. "The mean/volatility asymmetry in Asian stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(5), pages 411-419.
    4. Tsafack, Georges & Becker, Ying & Han, Ki, 2023. "Earnings announcement premium and return volatility: Is it consistent with risk-return trade-off?," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2008. "Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience," Working papers 2008-49, University of Connecticut, Department of Economics.

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