Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?
IMF Working Papers, February 26, 2014
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Bibliographic details
- Authors: Fabian Lipinsky, Li L Ong
- Published: February 26, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484320143.001
Overview and key finding
- Stock markets play a key role in corporate financing in Asia.
- Despite increasing importance in size and cross-border investment activity, the region’s markets are reputed to be more “idiosyncratic” 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, the authors find evidence of greater idiosyncratic influences in the pricing of Asia’s stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals.
- The paper shows a significant relationship between the strength of implementation of securities regulations and the “noise” in stock pricing, suggesting that improvements in securities market regulation in Asia could enhance stock markets’ roles as stable and reliable sources of financing.
Methodology and analytical framework
- Model draws on:
- international asset pricing theory,
- economic theory,
- accounting literature.
- Comparative approach:
- Asia’s stock markets versus G-7 counterparts.
- Empirical focus:
- decomposing stock pricing into systematic factors, local fundamentals, and idiosyncratic influences (referred to as “noise”).
Main empirical findings
- Evidence of greater idiosyncratic influences in Asia’s stock pricing relative to G-7 markets.
- Idiosyncratic component remains significant even after controlling for:
- identified systematic factors,
- local fundamentals.
- Significant relationship identified between:
- the strength of implementation of securities regulations, and
- the magnitude of “noise” in stock pricing.
Policy implications and recommendations
- Strengthening the implementation of securities regulations in Asia could:
- reduce “noise” in stock pricing,
- enhance the role of stock markets as stable and reliable sources of corporate financing going forward.
Publication and metadata
- Authors: Fabian Lipinsky, Li L Ong
- Date: February 26, 2014
- Series: Working Paper No. 2014/037
- Issue: 037
- Volume: 2014
- Pages: 46
- DOI: https://doi.org/10.5089/9781484320143.001
- Stock No: WPIEA2014037
- ISBN: 9781484320143
- ISSN: 1018-5941
- Subjects: Asset prices; Financial institutions; Financial markets; Financial regulation and supervision; Prices; Securities markets; Securities regulation; Stock markets; Stocks
- Keywords: arbitrage pricing theory; Asia and Pacific; Asia's stock markets; Asian financial crisis; Asset prices; business cycle; fundamentals; Global; global financial crisis; idiosyncratic factors; Indonesia SE; integration; IOSCO; London SE group; market liquidity; Osaka SE; Santiago SE; Securities markets; securities regulation; Shanghai SE; Shenzhen SE; stock market; stock market capitalization; stock market return; stock market volatility; Stock markets; stock pricing; Stocks; term structure of interest rates; Tokyo SE group; WP
IMF Working Paper — Fabian Lipinsky and Li L Ong, “Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?”, February 26, 2014, Working Paper No. 2014/037.