Essays on exchange rate risk, asset returns and trade flows in East Asian emerging market economies.

摘要

This dissertation examines the dynamic relationship between stock returns and exchange rates as well as the effect of time-varying exchange rate risk on Asian financial capital markets and trade flows in the pre and post Asian crisis periods. As an introduction to the dissertation, we discuss the East Asian emerging market economies' common features and their economic indicators. We also examine the 1997 crisis period, its potential causes and effects to the region and the world markets.;First, we analyze the macroeconomic relationship between exchange rates and stock returns as well as three macroeconomic variables (real GNP, interest rate differentials and money supply) for Asian emerging market economies namely Indonesia, Malaysia, the Philippines, Korea, Taiwan and Thailand. In order to do that we focus on Granger causality tests, cointegration and vector error correction model. Our results show that there are feedback relationships in Indonesia, Korea, Malaysia and Thailand. Moreover, we found that the stock oriented channel has a stronger influence compared to the flow channel in Indonesia, Korea and Thailand, whereas in Malaysia the flow channel is dominant. In the short run the two markets are linked only through the stock channel in Philippines. For Taiwan there is no statistically significant cointegration coefficient between the two markets and we are only able to find weak stock oriented channel and weak flow oriented channel between exchange rates and stock prices.;Second, we take a micro level approach and examine the effect of time-varying exchange rate risk on the Southeast Asian stock markets for the pre- and post-crisis period from an asset pricing perspective focusing on firms' risk exposure. Here, we try to answer three main questions; (i) Does time-varying exchange rate risk affect financial capital markets of Asian emerging economies in the pre- and post-crisis period, i.e., does exchange rate risk get priced in Asian stock markets? (ii) Does exchange rate risk have a higher impact on emerging markets compared to developed markets? In order to do this, we utilize a parsimonious international capital asset pricing model (ICAPM) and estimate the generalized autoregressive conditional heteroskedasticity in mean (GARCH-M) model. Our findings suggest that there is significant time varying exchange rate risk even when we account for the country specific risk factors for East Asian emerging market economies during crisis periods. We also observed that the exchange rate risk has a higher impact on emerging Asian markets compared to the markets for US and Japan.;Third, we investigate the response of exchange rate volatility on international trade in South East Asian economies for the pre and post 1997-crisis period. We search answers to the following questions. What is the long-run impact of the exchange rate volatility on the trade flows? Is the effect of exchange rate volatility on the export flows robust to the different volatility measures? Towards this goal, we utilize a reduced form export demand function and the vector error correction model to examine the short run dynamics and the long-run relationships of these variables. Moreover, the model is reestimated with different measures of exchange rate volatility namely with a moving average volatility measure, a two step ARCH(1) and a two step generalized autoregressive conditional heteroskedasticity, GARCH (1,1) approach in order to investigate the robustness of exchange rate volatility on export demand. Our results suggest long run relationships for almost all countries except Indonesia (with export demand using moving average exchange rate volatility measure) and Thailand (with export demand function using GARCH exchange rate volatility measure). The long run export demand is determined by the relative export prices, world income, exchange rate volatility and real effective exchange rates. We observe a consistent negative impact of exchange rate volatility on export demand for Korea, Singapore and Malaysia in the long run. This result is robust for the choice of volatility measure. We also find a negative effect of real effective exchange rate on the export demand for all Asian countries excluding Indonesia. The expected positive effect on the world income is evident for all countries except for Singapore.