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Does asymmetric information play a role in explaining the Asian crisis? Application to Indonesian and Malaysian cases using a two-state Markov Switching model

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  • Emna Trabelsi

    (ISG - Institut Supérieur de Gestion de Tunis [Tunis] - Université de Tunis)

Abstract

This paper aims at establishing a relationship between disparity of information and the probability of speculative attack in explaining the Asian crisis. We apply the general framework of Markov-Switching models to the differential of interest rates (DIR), subsequently in Indonesia and Malaysia. We allow dependency of the transition probabilities over the asymmetric information indicators. The Maximum Likelihood estimators results (MLE) are twofold: (1) an increase of information dispersion among speculators leads to a higher probability of a currency crisis (2) there is a significant asymmetric impact of information disparity as measured by difference between fund price and Net Asset Value (NAV) on the transition probability in the case of Indonesia, while the hypothesis is rejected for Malaysia's case.

Suggested Citation

  • Emna Trabelsi, 2010. "Does asymmetric information play a role in explaining the Asian crisis? Application to Indonesian and Malaysian cases using a two-state Markov Switching model," Working Papers hal-00536311, HAL.
    • Handle: RePEc:hal:wpaper:hal-00536311
    Note: View the original document on HAL open archive server: https://hal.science/hal-00536311
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    References listed on IDEAS

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    1. Francis X. Diebold & Joon-Haeng Lee & Gretchen C. Weinbach, 1993. "Regime switching with time-varying transition probabilities," Working Papers 93-12, Federal Reserve Bank of Philadelphia.
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    5. Jeffrey A. Frankel and Sergio L. Shmukler., 1996. "Country Fund Discounts, Asymmetric Information and the Mexican Crisis of 1994: Did Local Residents Turn Pessimistic Before International Investors?," Center for International and Development Economics Research (CIDER) Working Papers C96-067, University of California at Berkeley.
    6. Jeffrey Frankel & Sergio Schmukler, 1996. "Country fund discounts and the mexican crisis of December 1994: Did local residents turn pessimistic before international investors?," Open Economies Review, Springer, vol. 7(1), pages 511-534, March.
    7. Tsai, Pei-Jung, 2010. "Country funds and the role of international equity flows in pricing and in premiums and discounts," Global Finance Journal, Elsevier, vol. 21(1), pages 43-70.
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    More about this item

    Keywords

    Speculative attack; Global Games; Asymmetric information; Markov-Switching Models;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • F3 - International Economics - - International Finance

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