Market crash factors and developing an early warning system: Evidence from Asia
Market crashes pose significant risks to the stability and performance of financial markets, making the development of an early warning system crucial. This study utilizes exchange rate volatility and investor sentiment to predict market crashes. While several studies have examined factors affecting...
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2023-08-01
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| Series: | Investment Management & Financial Innovations |
| Subjects: | |
| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18633/IMFI_2023_03_Kustina.pdf |
| _version_ | 1797743771380613120 |
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| author | Lisa Kustina Rachmat Sudarsono Nury Effendi |
| author_facet | Lisa Kustina Rachmat Sudarsono Nury Effendi |
| author_sort | Lisa Kustina |
| collection | DOAJ |
| description | Market crashes pose significant risks to the stability and performance of financial markets, making the development of an early warning system crucial. This study utilizes exchange rate volatility and investor sentiment to predict market crashes. While several studies have examined factors affecting market crashes in developing countries. This study aims to develop an early warning system for investors to minimize investment risk using Exchange Rate Volatility and Investor Sentiment. The study focused on seven countries: Indonesia, Malaysia, Singapore, the Philippines, Thailand, Vietnam, and Mongolia. The stock exchanges examined included Jakarta Stock Exchange Composite, FTSE Malaysia KLCI, FTSE Singapore, SET Index, PSEi, HNX/HNXI, and MNE Top 20/MNETOP20. The analysis involved assessing early warning systems to provide valuable supplementary information for decision making and evaluating market vulnerabilities. The logistic regression equation was utilized to model market crashes, incorporating variables such as exchange rate volatility and investor sentiment while considering their interactions as moderating factors. The results indicate that exchange rate volatility and investor sentiment have a significant negative effect on market crashes, with probabilities of 0.0082 and 0.000 Furthermore, investor sentiment acts as a mediator for exchange rate volatility, amplifying its impact on market crashes. This suggests that higher exchange rate volatility and negative investor sentiment increase the likelihood of market crashes. Exchange rate volatility and investor sentiment can serve as early warning indicators, emphasizing the importance of monitoring these factors for market participants and policymakers. |
| first_indexed | 2024-03-12T15:01:15Z |
| format | Article |
| id | doaj.art-2d17e33066f64459a6d5cfc378d4c4db |
| institution | Directory Open Access Journal |
| issn | 1810-4967 1812-9358 |
| language | English |
| last_indexed | 2024-03-12T15:01:15Z |
| publishDate | 2023-08-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Investment Management & Financial Innovations |
| spelling | doaj.art-2d17e33066f64459a6d5cfc378d4c4db2023-08-14T06:51:12ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582023-08-0120311612510.21511/imfi.20(3).2023.1018633Market crash factors and developing an early warning system: Evidence from AsiaLisa Kustina0https://orcid.org/0000-0003-4649-3157Rachmat Sudarsono1https://orcid.org/0000-0003-3369-4099Nury Effendi2https://orcid.org/0000-0002-0131-6053Ph.D. Student, Faculty of Economics and Business, Padjadjaran UniversityPh.D., Senior Lecturer, Faculty of Economics and Business, Padjadjaran UniversityProfessor, Faculty of Economics and Business, Padjadjaran UniversityMarket crashes pose significant risks to the stability and performance of financial markets, making the development of an early warning system crucial. This study utilizes exchange rate volatility and investor sentiment to predict market crashes. While several studies have examined factors affecting market crashes in developing countries. This study aims to develop an early warning system for investors to minimize investment risk using Exchange Rate Volatility and Investor Sentiment. The study focused on seven countries: Indonesia, Malaysia, Singapore, the Philippines, Thailand, Vietnam, and Mongolia. The stock exchanges examined included Jakarta Stock Exchange Composite, FTSE Malaysia KLCI, FTSE Singapore, SET Index, PSEi, HNX/HNXI, and MNE Top 20/MNETOP20. The analysis involved assessing early warning systems to provide valuable supplementary information for decision making and evaluating market vulnerabilities. The logistic regression equation was utilized to model market crashes, incorporating variables such as exchange rate volatility and investor sentiment while considering their interactions as moderating factors. The results indicate that exchange rate volatility and investor sentiment have a significant negative effect on market crashes, with probabilities of 0.0082 and 0.000 Furthermore, investor sentiment acts as a mediator for exchange rate volatility, amplifying its impact on market crashes. This suggests that higher exchange rate volatility and negative investor sentiment increase the likelihood of market crashes. Exchange rate volatility and investor sentiment can serve as early warning indicators, emphasizing the importance of monitoring these factors for market participants and policymakers.https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18633/IMFI_2023_03_Kustina.pdfdeveloping countriesfinancial market stabilityinvestment risk managementlogistic regressionmarket volatilitysentiment analysis |
| spellingShingle | Lisa Kustina Rachmat Sudarsono Nury Effendi Market crash factors and developing an early warning system: Evidence from Asia Investment Management & Financial Innovations developing countries financial market stability investment risk management logistic regression market volatility sentiment analysis |
| title | Market crash factors and developing an early warning system: Evidence from Asia |
| title_full | Market crash factors and developing an early warning system: Evidence from Asia |
| title_fullStr | Market crash factors and developing an early warning system: Evidence from Asia |
| title_full_unstemmed | Market crash factors and developing an early warning system: Evidence from Asia |
| title_short | Market crash factors and developing an early warning system: Evidence from Asia |
| title_sort | market crash factors and developing an early warning system evidence from asia |
| topic | developing countries financial market stability investment risk management logistic regression market volatility sentiment analysis |
| url | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/18633/IMFI_2023_03_Kustina.pdf |
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