Bong-Han Kim

Spillover Effects of the US Financial Crisis on Financial Markets in Emerging Asian Countries

We examine spillover effects of the recent U.S. financial crisis on five emerging Asian countries by estimating conditional correlations of financial asset returns across countries using multivariate GARCH models. We propose a novel approach that simultaneously estimates the conditional correlation coefficient and the effects of its determining factors over time, which can be used to identify the channels of spillovers. We find some evidence of financial contagion around the collapse of Lehman Brothers in September 2008. We further find a dominant role of foreign investment for the conditional correlations in international equity markets. The dollar Libor-OIS spread, the sovereign CDS premium, and foreign investment are found to be significant factors affecting foreign exchange markets.

Savings-investment cointegration in panel data

Existing cointegration tests for the savings-investment model are limited because of low testing power. In this paper the savings-investment correlation is re-examined using a panel cointegration test by which the power seems to be improved greatly. A cointegration relationship is obtained between the two variables with panel data, and the savings retention coefficient is far from zero. This seems to be consistent with results based on traditional regression methods. Thus, it is concluded that cointegration techniques do not provide the solution to the savings-investment puzzle.

An empirical study of the relation between stock price and EPS in panel data: Korea case

This study investigates the relationship between stock price and earnings-per-share using Korean stock market data. The nonstationarity of the data has been managed. In particular, recently developed panel cointegration techniques are used, which are known to be more powerful than individual cointegration methods. The tests applied to the panel data as a whole showed the cointegration relationship between the stock prices and EPS (earnings-per-share), while tests for the individual stock prices could not detect the cointegration. Therefore, there is now some evidence in support of weak mean-reversion for the PER (Price-Earnings Ratio). However, only mixed evidence was obtained for the hypothesis that the coefficient of EPS to the stock prices is equal to one. In short, stock prices do seem to move with firm fundamentals, in the long-run and on average, but not necessarily at the same rate.

Nonlinear Mean-Reversion in Southeast Asian Real Exchange Rates

We find nonlinear mean reverting tendencies in Southeast Asian currencies by applying the newly developed nonlinear unit-root test by Park and Shintani (2005). First, with the US dollar as the numeraire currency, we find that 63% of the real exchange rates of Southeast Asian currencies turn out to be stationary. However, with the Japanese yen as the numeraire currency, we find no evidence in favour of Purchasing Power Parity (PPP) for most currencies in Southeast Asia, except for the Korean won and Taiwanese dollar. These findings imply that Southeast Asian currencies may not form a yen-dominated Asian exchange rate system. Second, when the dollar-based real exchange rates of Southeast Asian countries are nonlinear mean reverting, we find that the mean-reverting process could be well described by the Exponential Smooth Transition Autoregressive (ESTAR) model, rather than the Double Threshold Autoregressive (DTAR) or Double Logistic Smooth Transition Autoregressive (DLSTAR) model. Our results are reinforced by impulse response function and forecasting analysis.

Export Similarity, FDI and Yen-Synchronization of East Asian Currencies: Regime Switching Regression Model and Microstructural Analysis

Using a regime-switching regression model, we provide evidence of the synchronization of East Asian (Korea, Thailand, the Philippines, Indonesia, and Taiwan) currencies-dollar exchange rates with yen dollar exchange rates and report that the export similarity index and FDI between Japan and this group of countries are two main determinants of yen synchronization in the region. Our estimation results are robust with different econometric techniques.We also investigate the microstructural characteristics of yen synchronization and show that the synchronization period persists once it has begun and the volatility of dollar exchange rates is higher during synchronization than during de-synchronization. Finally, we conclude that those findings support the idea of a so-called “yen bloc”. However, as opposed to traditional arguments, we show that yen synchronization is driven not by increased exports and imports in this area but by increased export similarity in the region and FDI between Japan and East/Southeast Asian countries

Provincial Output Spillovers in China: Global Vector Autoregressive Approach

The paper uses a global vector autoregressive model to examine provincial output spillover effects in China. We find that there are effective output spillovers from Guangdong, Liaoning and Zhejiang to other provinces in China, but trivial effects from Shanghai, Shandong, Sichuan and Xinjiang, and negative effects from Beijing. Foreign direct investment (FDI) in Guangdong and Liaoning is the main channel for creating provincial output spillovers, compared with domestic investment and exports. However, FDI spillovers tend to decrease, with spillovers from exports and domestic investment rising over time, so that the spillover effects in Guangdong and Liaoning are non-persistent and highly volatile. Other channels of output spillover, such as domestic investment, should be enhanced. Impacts of shock from government expenditure on GDP vary significantly across time and provinces; inland and western provinces are most negatively affected. The heterogeneous spillover structure shows that regional policies might achieve better results than nationwide policies in reducing regional disparity.

Testing for Purchasing Power Parity in Southeast Asian Currencies: Panel Data Approach

This paper analyses purchasing power parity (PPP) for eight Southeast Asian economies using panel unit-root and cointegration tests designed for handling cross-sectional dependence. The main empirical findings are as follows. Southeast Asian real exchange rates in terms of yen are highly correlated because the nominal exchange rates are determined as arbitrage rates. The average correlations are 0.28 for first-differenced dollar-based real rates and 0.69 for first-differenced yen-based real rates. PPP is supported for yen-dominated Southeast Asian currencies by panel unit-root and cointegration tests if cross-sectional independence is assumed but is not supported if cross-sectional dependence is allowed for instead. Our simulation results suggest that the latter inference is the appropriate one for our data.