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Taper Tantrum and Emerging Equity Market Slumps

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  • Estrada, Gemma Esther

    (Asian Development Bank)

  • Park, Donghyun

    (Asian Development Bank)

  • Ramayandi, Arief

    (Asian Development Bank)

Abstract

In the postglobal financial crisis period, the central banks of the advanced economies pursued unconventional monetary policies, such as the United States (US) Federal Reserve’s quantitative easing (QE). Those policies and their unwinding may significantly affect cross-border capital flows and thus destabilize the financial systems of emerging markets. For example, emerging markets experienced substantial financial instability during the taper tantrum triggered by the US Federal Reserve Chairman Ben Bernanke’s May 2013 announcement of the potential unwinding of QE. In this paper, we examine the spillovers from the taper tantrum on emerging markets more rigorously by using econometric analysis to empirically assess the effect on equity markets in emerging markets. Our central finding that virtually all emerging market equity markets were affected by the taper tantrum highlights the need for emerging market authorities to remain vigilant about the effects of advanced economy monetary policies on their financial stability.

Suggested Citation

  • Estrada, Gemma Esther & Park, Donghyun & Ramayandi, Arief, 2015. "Taper Tantrum and Emerging Equity Market Slumps," ADB Economics Working Paper Series 451, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0451
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    References listed on IDEAS

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    1. Park, Donghyun & Ramayandi, Arief & Shin, Kwanho, 2014. "Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries," ADB Economics Working Paper Series 409, Asian Development Bank.
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    Cited by:

    1. Rob Calvert Jump & Jo Michell, 2023. "Dollar Liquidity, Financial Vulnerability and Monetary Sovereignty," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1087-1113, September.
    2. Juan Eberhard & Jaime F. Lavin & Alejandro Montecinos-Pearce, 2017. "A Network-Based Dynamic Analysis in an Equity Stock Market," Complexity, Hindawi, vol. 2017, pages 1-16, November.
    3. Hanauer, Matthias X. & Kalsbach, Tobias, 2023. "Machine learning and the cross-section of emerging market stock returns," Emerging Markets Review, Elsevier, vol. 55(C).
    4. Willem THORBECKE, 2016. "Investigating the Effect of U.S. Monetary Policy Normalization on the ASEAN-4 Economies," Discussion papers 16070, Research Institute of Economy, Trade and Industry (RIETI).
    5. Nicholas Sowels, 2023. "COVID‐19 and the fiscal and monetary challenges to implementing Our Common Agenda," Global Policy, London School of Economics and Political Science, vol. 14(S2), pages 29-34, March.
    6. Choi, Sun-Yong & Phiri, Andrew & Teplova, Tamara & Umar, Zaghum, 2024. "Connectedness between (un)conventional monetary policy and islamic and advanced equity markets: A returns and volatility spillover analysis," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 348-363.
    7. Lucian Liviu ALBU & Radu LUPU & Adrian Cantemir CĂLIN, 2016. "Quantitative Easing, Tapering And Stock Market Indices," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(3), pages 5-23.
    8. Qureshi, Fiza & Kutan, Ali M. & Ismail, Izlin & Gee, Chan Sok, 2017. "Mutual funds and stock market volatility: An empirical analysis of Asian emerging markets," Emerging Markets Review, Elsevier, vol. 31(C), pages 176-192.

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    More about this item

    Keywords

    capital flows; emerging market; equity market; financial stability; global financial crisis; quantitative easing; taper tantrum;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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