April 1999

What Triggers Market Jitters? A Chronicle of the Asian Crisis

Graciela L. Kaminsky and Sergio L. Schmukler


In the chaotic financial environment of Asia in 1997-1998, daily changes in stock prices of about 10 percent became commonplace. This paper analyzes what type of news moved the markets in those days of market jitters. We find that movements were triggered by local and neighbor-country news, with news about agreements with international organizations and credit rating agencies having had the most weight. However, some of those large changes cannot be explained by any apparent substantial news, but seem to have been driven by herd instincts of the markets itself. The evidence suggests that investors over-reacted to bad news.

Keywords: Financial markets, currency crises, news, herding behavior, contagion, crisis management

PDF: Full Paper

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