DP2150 The Persistence of Capital Inflows and the Behaviour of Stock Prices in East Asia Emerging Markets: Some Empirical Evidence

Author(s): Lucio Sarno, Mark P Taylor
Publication Date: May 1999
Keyword(s): Asset Market Bubbles, Capital Flows, East Asian crisis, Emerging Markets
JEL(s): E44, F20, F34, G1
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2150

We examine the view that the recent East Asian crisis was precipitated by bursting asset price bubbles which had been fuelled by strong capital inflows which were largely the result of a moral hazard problem in financial intermediation, and was exacerbated by a vicious cycle of asset price deflation and incipient and actual capital flight. We find evidence of stock market bubbles in all East Asian economies examined, although not in Australia. We examine various categories of capital flows to these countries and find, in particular, relatively high reversible components in portfolio flows to East Asian economies.