Impact of Asian Financial Crisis and the Spillover Effects on Three Pacific Basin Stock Markets - Malaysia, Singapore and Hong Kong

The standardized residuals and the squared standardized residuals of the US and the Japanese markets obtained from ARMA (1,1)-GARCH (1,1) models were used as exogenous variables in the mean and the variance equations of the three Pacific-Basin markets, namely, Malaysia, Singapore, and Hong Kong. The residual series were used to test the presence and the magnitude of the mean and volatility spillover effects from the US and Japan to the three Pacific-Basin markets during the pre- and post-financial crisis periods. The empirical results provide three interesting findings. First, the results indicate that both the US and the Japanese markets appear to be playing a significant role in transmitting the mean and volatility spillover effects in the Pacific-Basin region. Second, while the US market appeared to be more influential during the pre-crisis period, the Japanese market seems to have gained momentum in the post-crisis period. Lastly, the influence of the US and the Japanese markets on the Malaysian market has somewhat weakened during the post-crisis period, while for Singapore, the magnitude of the mean and spillover effect from these two countries has increased. As for Hong Kong, the US market tends to be more influential than the Japanese market.