Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?

Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?

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Stock markets play a key role in corporate financing in Asia. However, despite their increasing importance in terms of size and cross-border investment activity, the regiona€™s markets are reputed to be more a€œidiosyncratica€ and less reliant on economic and corporate fundamentals in their pricing. Using a model that draws on international asset pricing and economic theory, as well as accounting literature, we find evidence of greater idiosyncratic influences in the pricing of Asiaa€™s stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals. We also show proof of a significant relationship between the strength of implementation of securities regulations and the a€œnoisea€ in stock pricing, which suggests that improvements in the regulation of securities markets in Asia could enhance the role of stock markets as stable and reliable sources of financing into the future.On average, the adjusted-R2 for Asiaa#39;s stock markets is much lower than for the G -7 countries, while the average SE for Asia is ... between the AFC and GFC periods, except for the common lack of a€œpricing errorsa€ (possible abnormal returns ).

Title:Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?
Author: Mr. Fabian Lipinsky, Li Lian Ong
Publisher:International Monetary Fund - 2014-02-26

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