The contagious effects of the Asian financial crisis: some evidence from ADR and country funds

This paper sets out to analyze the changes in the Thai baht exchange rate during the period of the Asian financial crisis, examining the impact on prices, trading activity and the liquidity of American Depository Receipts (ADRs) and country funds. The results demonstrate that the changes in the Thai baht exchange rate led to contagious effects on Asian ADR and country fund returns, with contagion also being observed with regard to the volatility of ADRs and country funds in Asia. Although there is evidence that depreciation in the Thai baht triggered a sell-off of Asian country funds, thus demonstrating a massive overall loss of confidence in Asian securities by investors during the period of the Asian financial crisis, there is, nevertheless, no evidence that the depreciation of the Thai baht precipitated any sell-off of non-Asian ADRs and country funds. Evidence is also found to show that the reaction of net buying volume was much stronger for Asian closed-end country funds than Asian ADRs.