The behavior of stock prices and time-varying risk premium: Evidence for six Southeast Asian emerging stock markets

The primary objective of the chapter entitled “Risk and Returns Characteristics of the Six Southeast Asian Emerging Stock Markets” is to investigate the behavior of stock returns of the six Southeast Asian emerging markets, namely Thailand, the Philippines, Indonesia, Malaysia, Korea and Taiwan. The monthly stock returns basically are the first difference form of market price indices denominated in local currency (in percentage). The sample period is divided into two sub-periods to make a comparison of the market returns behavior between them. Based on the various ARCH type models, the market risk exhibits a considerable variation through time in both periods, except Indonesia and Malaysia for the pre-crisis, where the shocks to variance have persistent impact on the future changes of monthly stock returns. The stock markets seem to lose performance due to this crisis because of an increase in volatility and a decrease in the mean of returns in the entire period. Using the national CPI, M1, INT, and January seasonal variables at the monthly frequency, we find that the volatile features of stock returns and the market volatility are better explained by these exogenous variables regardless of the sample periods. Moreover, the expected mean of stock returns depends on its own lagged returns and the lagged disturbances.; The primary objective of the chapter entitled “Volatility Spillovers, and Price of Risk: Evidence from Six Southeast Asian Emerging Stock Markets Using a Multivariate GARCH-M Approach” is to examine the influence from the major markets, on those six Southeast Asian emerging markets and examine interactions among those emerging markets. Moreover, the existence of a time-varying price of risk will be evaluated in this chapter.; To address the changing unit price of risk, the two-step procedures (univariate GARCH-M and state space model) are used in this study. The empirical results imply that the first-order autocorrelation process rather than a random walk process, with the exception of the Taiwanese case, properly specifies variation in this variable. The capital investors put a high price on risk, when the market is in a downturn. Moreover, this time-varying price of risk has a strong explanatory power with respect to the market excess returns and volatility.; The primary objective of the chapter entitled “Stock Excess Returns and Local Macroeconomic Variables: Evidence from Six Southeast Asian Emerging Stock Markets” is mainly to investigate the behavior of risk premium and the credibility of monetary authorities. Using similar sample periods and exogenous variables as in the first essay, we initially observe a negative mean and an increase in standard deviation of the monthly excess returns that reflect a poor performance of those emerging markets after 1997 Asian financial crisis, except in Taiwan. The results from various ARCH specifications show that the excess returns vary significantly through time with a high degree of persistence in conditional variance. These results support the previous findings that the stock markets have serious imperfections.; We also find strong evidence that the monetary authorities have a serious credibility problem in the market place, with the exception of the Philippines and Malaysia. Overall, our evidence suggests that individual stock market movements are influenced by other markets and variables reflecting local information. (Abstract shortened by UMI.)...