Review of Pacific Basin Financial Markets and Policies

This paper examines the portfolio effect on the daily stock returns across industrial sectors in the Hong Kong market. For the overall daily stock returns, our results show that with an increase in the portfolio size, the standard-deviation and kurtosis decrease while the skewness becomes more negative. The result is a more negatively skewed but less leptokurtic stock return distribution on average. However, the impact of diversification on stock returns differs across weekdays. On Monday, the reduction in standard deviation is the smallest across all weekdays. Simple portfolio diversification cannot eliminate skewness and kurtosis only on Monday but not on other weekdays. Our results suggest that a new anomaly exists in the Hong Kong stock market on Monday.

There are many societal similarities among Taiwan, Hong Kong and Singapore. However, with respect to financial developments, there is no denying that Hong Kong and Singapore score higher than Taiwan with regard to liberalization and internationalization. The financial developments of the three regions are compared retrospectively and prospectively along the lines of financial institutions, financial markets and government controls. The differences in the relative scales of the three regions' financial industries are highlighted together with a comparison of their developmental processes.

This paper examines the relationship between financial market development and economic growth. By pooling the data of both developed and developing countries, we test the relation between the real GDP growth rate and financial development variables suggested by the aggregate capital endogenous growth model. We find that the capital absorption and saving rates have a significant positive relation with economic growth whereas the interest rate has a negative relation. Since the behavior of these explanatory variables reflects financial development, our results suggest that financial intermediation plays a significant role in economic growth. Furthermore, we find that there was a shift in the economic performance of Asian developing economies in the 1980s. Financial reforms in this region have resulted in a transitory adverse impact on the capital absorption rate. It also appears that economic growth has slowed down recently for most of these newly industrialized economies. Our result suggests that the lack of efficient financial markets may have hindered the economic performance of these economies.

The banking crises experienced in many countries worldwide in recent years can often be attributed, at least in part, to state owned or controlled banks. These banks are often not typically banks in the traditional sense, but are effectively arms of the government to direct credit to favored borrowers in pursuit of economic, political, or social objectives. This frequently results in costly misallocation of resources. In addition, because their bottom line is not necessarily profitability, many consistently generate losses and continue to operate while economically insolvent. They can do this because all of their deposit liabilities are perceived to be fully guaranteed. Thus, their negative net worths are effectively off-budget liabilities of the government. At some point, taxpayers become reluctant to bear this increasing burden and the government is forced to recapitalize their institutions explicitly. To avoid repetitions of these costly policies, state owned banks should be completely privatized.

Using weekly disaggregated returns data for the top twenty shares, by market value, from seventeen emerging markets over the period 1991–1996, this paper investigates the potential gains from international diversification into these markets. The paper also assesses whether these gains could have been achieved on an ex-ante basis. Finally, the paper quantifies the importance of country and industry factors in emerging market stock returns. The findings suggest that (i) substantial benefits exist from investing in emerging stock markets and (ii) these gains accrue more from the geographical spread than from the industrial mix of the equities included in the portfolio.