Emerging Stock Market Liberalization And Currency Crises
The liberalization of emerging stock markets in Latin America and East Asia in the late 1980s and early 1990s was expected to make these equity markets more efficient and more integrated in world financial markets. However, large capital inflows in the first half of the 1990s were followed by sudden and huge capital outflows in the second half of the 1990s, which ultimately provoked severe currency and economic crises. It is possible that emerging stock markets remained inefficient despite their liberalization, and allowed speculative bubbles to develop and eventually burst. The main objective of this paper is therefore to test the efficiency of Latin American and East Asian equity markets before and after their liberalization. We also examine the integration of these emerging stock markets in world financial markets, and investigate the relationships between stock returns and currency crises over these two periods.