CORRELATION AMONG STOCK MARKETS UNDER DIFFERENT EXCHANGE RATE SYSTEMS

This study investigates the linkage between the Hong Kong stock market and Singapore stock market and the U.S. stock market during the pre- and post-East Asia Financial Crisis in 1997 and 1998. It uses multivariate regression models to study the impact of Hong Kong’s fixed exchange rate system and Singapore’s free-floating exchange rate system on their respective stock markets. The results indicate that the exchange rate is not a significant determinant of linkage between the U.S. and the two Asian stock markets, but the evidence suggests that stronger post-crisis relationships between the U.S. and the two Asian stock markets. The evidence also supports a stronger short-run relationship between the U.S. and Hong Kong stock markets relative to that between the U.S. and Singapore stock markets.