The Factors Affecting Stock Market Volatility and Contagion: Thailand and South-East Asia Evidence

In recent years, the rapid growth in cross border international portfolio investments reflects the globalization of financial markets. The impetus for globalized financial markets initially comes from financial liberalization and high growth of capital such as superannuation funds, mutual funds, private funds and provident funds. In South-East Asia, the investment portfolios have been growing continuously after the financial crisis in 1997 because of the revival of Asian financial markets presenting new challenges to practitioners, policy makers and researchers in the finance discipline. Also, there are significant shifts in economics and financial variables underlying emerging markets due to re-alignment of currency values, deregulation and globalisation. This revival can make South-East Asian financial markets more attractive and result in higher growth. As a result, South-East Asian financial markets have become attractive market for foreign investors. However, South-East Asian nations have to counter the adverse impacts of domestic and global economic factors which make their financial markets volatile. The study of the factors affecting stock market has recognized the relationship between equity price, company performance, economic variables, financial liberalization, market integration, and incidents. However, these studies have not included some of the most significant recent change in the financial market, namely: oil price fluctuation, US subprime crisis, and the changing nature of political uncertainty. The literature on the contagion effects and the transmission of credit crisis has been limited to the developed financial markets in the western economies and those of the emerging markets in particular Thailand and South-East Asia financial markets have largely been left untouched. This is a serious limitation in the literature given the regional and international significance of these emerging markets. The purpose of the research is to identify the dominant factors affecting stock market volatility in Thailand and measure the contagion effects of stock market volatility in Thailand on other South-East Asian stock markets