The Asian BetThe Asian Bet

Campbell R. HarveyDuke University and NBER

Andrew H. RoperUniversity of Wisconsin

Emerging Markets Corporate FinanceFebruary 2003

Asian Bet

Three levels of risk

• Decreased profitability

• Increased leverage

• Increased U.S. dollar leverage

Figure 1: New Capital Mobilization and Share Price Appreciation

Panel A: Total Value of Public Offerings and Share Issuance by IFC Constituents

Panel B: New Capital Mobilization Versus Appreciation (1990-1996)

0

2000

4000

6000

8000

10000

12000

China Indonesia Korea Malaysia Philippines Taiwan Thailand

Mill

ions

of

US

Dol

lars 1990

1991

1992

1993

1994

1995

1996

00.20.40.60.8

11.2

China

Indo

nesia

Korea

Mala

ysia

Philipp

ines

Taiwan

Thaila

nd

Argen

tina

Brazil

Chile

Mex

ico

Venez

uela

Asia

Latin A

meri

ca

Rat

io

Proportion of increase in MCAPdue to share issuance

Figure 2: International Equity Offerings

Panel A: East Asia

International Equity Offerings

0100020003000400050006000

China

Korea

Philipp

ines

Indo

nesia

Mala

ysia

Thaila

nd

Mill

ion

s o

f U

S D

olla

rs

1992 1993 1994 1995

Panel B: Latin America

International Equity Offerings

02000400060008000

10000

Venez

uela

Mex

icoChil

eBra

zil

Argen

tinaM

illi

on

s o

f U

S D

oll

ars

1992 1993 1994 1995

Panel C: Regional Totals

Regional International Equity Offerings

010002000300040005000600070008000

1992 1993 1994 1995

Mil

lio

ns

of

US

Do

llar

s

Asia

Latin America

F i g u r e 3 : I n d o n e s i a n E u r o b o n d s

D a t a S o u r c e : E u r o m o n e y ’ s B o n d w a r e D a t a b a s e P a n e l A : E u r o b o n d F l o a t s

P a n e l B : E u r o b o n d s O u t s t a n d i n g

I n d o n e s i a E u r o b o n d F l o a t s

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Millio

ns of U

S$

T o t a l F l o a t

D o l l a r D e n o m i n a t e d

I n d o n e s i a E u r o b o n d s O u t s t a n d i n g

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Millio

ns of U

S$

T o t a l O u t s t a n d i n g

D o l l a r D e n o m i n a t e d

K o r e a E u r o b o n d s O u t s t a n d i n g

0

5 0 0 0

1 0 0 0 0

1 5 0 0 0

2 0 0 0 0

2 5 0 0 0

3 0 0 0 0

3 5 0 0 0

4 0 0 0 0

4 5 0 0 0

5 0 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Million

s of US

$

T o t a l O u t s t a n d i n g

D o l l a r D e n o m i n a t e d

0

2 0 0 0

4 0 0 0

6 0 0 0

8 0 0 0

1 0 0 0 0

1 2 0 0 0

1 4 0 0 0

1 6 0 0 0

1 8 0 0 0

2 0 0 0 0

Y e a r

Million

s of US

$

T o t a l F l o a t

D o l l a r D e n o m i n a t e d

K o r e a E u r o b o n d F l o a t s

M a l a y s i a E u r o b o n d s O u t s t a n d i n g

0

2 0 0 0

4 0 0 0

6 0 0 0

8 0 0 0

1 0 0 0 0

1 2 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Million

s of U

S$

T o t a l O u t s t a n d i n g

D o l l a r D e n o m i n a t e d

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

3 5 0 0

4 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Million

s of U

S$

T o t a l F l o a t

D o l l a r D e n o m i n a t e d

M a l a y s i a E u r o b o n d F l o a t s

P h i l i p p i n e s E u r o b o n d s O u t s t a n d i n g

0

1 0 0 0

2 0 0 0

3 0 0 0

4 0 0 0

5 0 0 0

6 0 0 0

7 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Millio

ns of U

S$

T o t a l O u t s t a n d i n g

D o l l a r D e n o m i n a t e d

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

3 5 0 0

4 0 0 0

4 5 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Millio

ns of U

S$

T o t a l F l o a t

D o l l a r D e n o m i n a t e d

P h i l i p p i n e s E u r o b o n d F l o a t s

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

3 5 0 0

4 0 0 0

4 5 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Million

s of US

$

T o t a l F l o a t

D o l l a r D e n o m i n a t e d

T a i w a n E u r o b o n d F l o a t s

T a i w a n E u r o b o n d s O u t s t a n d i n g

0

5 0 0

1 0 0 0

1 5 0 0

2 0 0 0

2 5 0 0

3 0 0 0

3 5 0 0

4 0 0 0

4 5 0 0

5 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Million

s of US

$

T o t a l O u t s t a n d i n g

D o l l a r D e n o m i n a t e d

0

1 0 0 0

2 0 0 0

3 0 0 0

4 0 0 0

5 0 0 0

6 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

T o t a l F l o a t

D o l l a r D e n o m i n a t e d

T h a i l a n d E u r o b o n d F l o a t s

T h a i l a n d E u r o b o n d s O u t s t a n d i n g

0

2 0 0 0

4 0 0 0

6 0 0 0

8 0 0 0

1 0 0 0 0

1 2 0 0 0

1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7

Y e a r

Millio

ns of

US$ T o t a l O u t s t a n d i n g

D o l l a r D e n o m i n a t e d

Panel A: Case Study of Indonesia

0

20

40

60

80

100

120

140

160

Dec-84

Jun-85Dec-85

Jun-86Dec-86

Jun-87Dec-87

Jun-88Dec-88

Jun-89Dec-89

Jun-90Dec-90

Jun-91Dec-91

Jun-92Dec-92

Jun-93Dec-93

Jun-94Dec-94

Jun-95Dec-95

Jun-96Dec-96

Jun-97Dec-97

Jun-98

Date

Indonesia

Bekaert/Harvey Official Liberalization Date 09/89

Malacca Fund (Cayman) Ltd. launched as first country fund.

Foreigners allowed to purchase up to 49% of all companies listing shares.(excluding financial firms)

First Indonesian ADR launched.Ceiling on foreign ownership of

financials raised to 49%.

Foreign Board created to manage trading of foreign owned stocks.

Government announces plans to scrap 49% foreign limit on IPOs

INDOSAT, Asia's largest IPO, offers 25% in overseas market in the form of ADRs.

Figure 3g

U.S. Share of MSCI Market Capitalization in Indonesia

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Privatization

1/89: First ADR/CF9/89: BH Official Liberalization

Estimated Break

83: Most Deposit andloan rates liberalized

88: OTC market established; foreign banks allowed to

establish JV89: Monopoly of state banks over

SOE deposits removed

IT Prosecution

9/89: Foreingers allowed to purchase up to 49% of

all domestically listed firms

Panel B: Case Study of Korea

0

100

200

300

400

500

600

700

800

Dec-84

Jun-85Dec-85

Jun-86Dec-86

Jun-87Dec-87

Jun-88Dec-88

Jun-89Dec-89

Jun-90Dec-90

Jun-91Dec-91

Jun-92Dec-92

Jun-93Dec-93

Jun-94Dec-94

Jun-95Dec-95

Jun-96Dec-96

Jun-97Dec-97

Jun-98

Date

POSCO becomes first Korean ADR on NYSE.

Liberalization plan outlined. Limited(Unlimited) industries will have foreign investment limits of up to 8%(10%) of market capitalization. Individual foreign investor limit of 3% for any industry. Plan not put into effect immediately.

First Korean ADR launched.

Foreign ownership restrictions raised from

10% to 12%.

Official opening of market to foreign investors. Initial foreign ownership limits

set at 10% with 3% maximum for individual investors.

Estimated that foreigners own up to 9.8% of market capitalization of Koreean

market.

Market opens to foreign investors subject to approval. Repatriation of

capital is freely permitted.

Foreign ownership restrictions raised from 12% to 15%.

Foreign ownership restrictions raised from

15% to 18%.

Foreign ownership restrictions raised from 18% to 20%.

Foreign ownership restrictions raised from 20% to 23%.

Foreign ownership restrictions raised from

23% to 26%.

Foreign ownership restrictions raised from 26% to 55%.

Bekaert/Harvey Official Liberalization Date 01/92

Korea

Figure 3h

U.S. Share of MSCI Market Capitalization in Korea

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

First ADR/CF

Trade LiberalizationForex Controls Lifted

BH Official Liberalization

Free Capital Repatriation

Estimated Break

Foreign Firms list on domestic exchange

IT Prosecution

Figure 2

Estimated U.S. Equity Portfolio Holdings(US$ Billions)

0

5

10

15

20

25

30

35

40

45

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Brazil Korea

BH Official Liberalizations

Source: Thomas and Warnock (2002)

Figure 1

Equity Market Liberalization Intensity

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Brazil Korea

BH Official Liberalizations

Source: Edison and Warnock (2002)

Panel C: Case Study of Malaysia

0

50

100

150

200

250

300

350

400

450

Dec-84

Jun-85Dec-85

Jun-86Dec-86

Jun-87Dec-87

Jun-88Dec-88

Jun-89Dec-89

Jun-90Dec-90

Jun-91Dec-91

Jun-92Dec-92

Jun-93Dec-93

Jun-94Dec-94

Jun-95Dec-95

Jun-96Dec-96

Jun-97Dec-97

Jun-98

Date

Malaysia

Bekaert/Harvey Official Liberalization Date 12/88

Malaysia Fund launched.

Outline Persective Plan passed. Plan emphasized

growth through investment. 30% foreign ownership

restriction still left in place.

First Malaysian ADR launched.

Budget calls for liberalization of foreign ownership restrictions.

30% foreign ownership restriction removed for manufactoring firms.

Kuala Lumpur Options and Financial Futures Exchange opened.

49% foreign ownership restriction relaxed to 61%

for local telephone companies.

Figure 3i

U.S. Share of MSCI Market Capitalization in Malaysia

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Major Privatization plan announced

BH Official Liberalization

Estimated Break

78: Interest Rates and Capital Accounts Liberalized

IT Prosecution

First ADR/CF

Budget Calls to Liberalized Foreign Ownership Policies

Controls on InterestRates Completely

Eliminated

Guidelines on Foreign Ownership

Liberalized

Panel D: Case Study of Philippines

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Dec-84

Jun-85Dec-85

Jun-86Dec-86

Jun-87Dec-87

Jun-88Dec-88

Jun-89Dec-89

Jun-90Dec-90

Jun-91Dec-91

Jun-92Dec-92

Jun-93Dec-93

Jun-94Dec-94

Jun-95Dec-95

Jun-96Dec-96

Jun-97Dec-97

Jun-98

Date

Philippines

Bekaert/Harvey Official Liberalization Date 06/91

Philippine Long Term Equity Fund launched. This marks the first substantial

country fund for Philippines.

First Philippine ADR launched.

Foreigners allowed to repatriate cash dividends without central bank approval.

All foreign exchange restrictions are removed. Foreigners can now

freely repatriate capital.

Foreign investment act signed into law. Act

removes all restrictions on foreign investment over

next three years.

Figure 3k

U.S. Share of MSCI Market Capitalization in Philippines

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Privatization

BH Official Liberalization

Estimated Break

81: Interest Rates ControlsGradually Phased Out

First ADR/CF

Restrictions lifted governing repatriation of

capital income by foreigners

Removes (over 3 years) all restrictions on

foreign investment

Foreign Exchange

Controls Lifted

Restrictsion on Foreign Bank Branking

Lifted

Panel E: Case Study of Taiwan

0

200

400

600

800

1000

1200

1400

1600

1800

Dec-84

Jun-85Dec-85

Jun-86Dec-86

Jun-87Dec-87

Jun-88Dec-88

Jun-89Dec-89

Jun-90Dec-90

Jun-91Dec-91

Jun-92Dec-92

Jun-93Dec-93

Jun-94Dec-94

Jun-95Dec-95

Jun-96Dec-96

Jun-97Dec-97

Jun-98

Date

Taiwan

Taipie Fund launced on LSE

Foreign stock brokers allowed to open

branches in Taiwan

Foreign exchange liberalization

Phase 2 of liberalization plan. Pre-approved foreign institutional investors can own up to maximum 5% of any list stock. Individuals can own up to 10%of any stock.

Ceiling on individual foreign ownership raised to 20%.

Ceiling on individual foreign ownership raised to 25%.

Ceiling on individual foreign ownership raised to 30%.

Bekaert/Harvey Official Liberalization Date 01/91

First Taiwanese ADR announced.

1982-Phase 1 of liberalization plan. Indirect investment established through trust funds organized in the Rebublic of China.

Figure 3m

U.S. Share of MSCI Market Capitalization in Taiwan

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

BH Official Liberalization Estimated BreakFirst ADR/CF

Capital AccountLiberalization

Interest Rate Deregulation; announces foreign

investment in domestic stock market

Implementation: Foreign Investment in domestic stock market permitted

IT Prosecution

0

10

20

30

40

50

60

70

80

Chi

na

Indo

nesi

a

Kor

ea

Mal

aysi

a

Phili

ppin

es

Taiw

an

Tha

iland

Arg

entin

a

Bra

zil

Chi

le

Mex

ico

Ven

ezue

la US

Ger

man

y

Per

cen

tage

1992

1993

1994

1995

1996

1997

Figure 11:IFCG Concentration Ratios Based Upon Top 10 Firms

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

9001

9007

9101

9107

9201

9207

9301

9307

9401

9407

9501

9507

9601

9607

9701

9707

Mod

ifie

d H

erfi

ndah

l Ind

ex

China

Indonesia

Korea

Malaysia

Philippines

Taiwan

Thailand

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

9001

9007

9101

9107

9201

9207

9301

9307

9401

9407

9501

9507

9601

9607

9701

9707

Mod

ifie

d H

erfi

ndah

l Ind

ex

Mexico

Argentina

Brazil

Figure 12: Asset Concentration by Market Capitalization

0

0.2

0.4

0.6

0.8

1

1.2

Dec-84

Jun-85

Dec-85

Jun-86

Dec-86

Jun-87

Dec-87

Jun-88

Dec-88

Jun-89

Dec-89

Jun-90

Dec-90

Jun-91

Dec-91

Jun-92

Dec-92

Jun-93

Dec-93

Jun-94

Dec-94

Jun-95

Dec-95

Jun-96

Dec-96

Jun-97

Dec-97

He

rfin

da

hl I

nd

ex Indonesia

Korea

Malaysia

Philippines

Taiw an

Thailand

Figure 13: Industrial Concentration Of Market Indices

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

9001

9007

9101

9107

9201

9207

9301

9307

9401

9407

9501

9507

9601

9607

9701

9707

Mod

ifie

d H

erfi

ndah

l Ind

ex

Chi

Indonesia

Korea

Malaysia

Philippines

Taiwan

Thailand

0

0.1

0.2

0.3

0.4

0.5

0.6

9001

9007

9101

9107

9201

9207

9301

9307

9401

9407

9501

9507

9601

9607

9701

9707

Mod

ifie

d H

erfi

ndah

l Ind

ex

Mexico

Argentina

Brazil

Figure 14: Value Traded Concentration Across Countries

Figure 17: Return on Equity (ROE)

Panel A: Indonesia

Summary Statistics of Distribution1992 1994 1996

Minimum Value 1.51 -10.85 -313.71First Quartile 9.68 9.03 6.41

Second Quartile 15.14 14.91 12.52Third Quartile 24.29 24.03 19.54

Maximum Value 74.86 65.67 107.83

Indonesia Return on Equity

0

0.05

0.1

0.15

0.2

0.25

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cent 1992

1994

1996

Panel B: Korea

Summary Statistics of Distribution1992 1994 1996

Minimum Value -120.70 -147.17 -234.90First Quartile 1.56 2.77 -3.07

Second Quartile 4.44 5.73 2.39Third Quartile 9.47 9.84 5.76

Maximum Value 65.96 64.30 29.49

KoreaReturn on Equity

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

-5.00

0.00

5.00

10.00

15.00

First Quartile Second Quartile Third Quartile

Per

cen

t

1992

1994

1996

Panel C: Malaysia

Summary Statistics of Distribution1992 1994 1996

Minimum Value -90.13 -624.79 -153.56First Quartile 6.44 8.14 6.16

Second Quartile 13.82 14.37 13.43Third Quartile 23.41 21.12 22.42

Maximum Value 89.07 124.63 125.42

MalaysiaReturn on Equity

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

en

cy

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cen

t

1992

1994

1996

Panel D: Philippines

Summary Statistics of Distribution1992 1994 1996

Minimum Value -28.81 -18.77 -1431.86First Quartile 4.61 3.78 1.28

Second Quartile 11.13 10.93 10.84Third Quartile 22.26 26.63 17.54

Maximum Value 63.44 71.10 66.21

PhilippinesReturn on Equity

0

0.05

0.1

0.15

0.2

0.25

0.3

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

en

cy

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cen

t

1992

1994

1996

Panel E: Taiwan

Summary Statistics of Distribution1992 1994 1996

Minimum Value -15.65 -38.39 -31.14First Quartile 3.86 6.02 3.83

Second Quartile 9.18 11.05 8.84Third Quartile 18.73 15.32 14.99

Maximum Value 40.51 63.75 57.78

TaiwanReturn on Equity

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

en

cy

1992 1994 1996

Changes in Quartile Cutoffs

0.005.00

10.0015.0020.00

First Quartile Second Quartile Third Quartile

Per

cen

t

1992

1994

1996

Panel F: Thailand

Summary Statistics of Distribution1992 1994 1996

Minimum Value -7.72 -11466.80 -273.68First Quartile 10.51 6.00 1.09

Second Quartile 19.42 13.84 7.77Third Quartile 24.69 22.71 15.70

Maximum Value 236.66 75.94 74.02

ThailandReturn on Equity

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

en

cy

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cen

t

1992

1994

1996

Return on Equity

0.00

5.00

10.00

15.00

20.00

25.00

Indones

ia

Korea

Mala

ysia

Philippin

es

Taiwan

Thailan

dBra

zilChile

Mex

ico

Per

cent

1992

1996

Panel A: Indonesia

Summary Statistics of Distribution1992 1994 1996

Minimum Value 2.69 -2.52 -24.34First Quartile 9.26 7.86 6.15

Second Quartile 13.23 11.39 9.68Third Quartile 21.54 18.54 13.96

Maximum Value 52.75 51.36 86.30

Indonesia Return on Invested Capital

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Panel B: Korea

Summary Statistics of Distribution1992 1994 1996

Minimum Value -35.26 -2.08 -8.98First Quartile 5.26 6.07 4.40

Second Quartile 7.30 7.42 6.14Third Quartile 9.18 9.24 7.97

Maximum Value 30.58 45.97 22.25

KoreaReturn on Invested Capital

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

5.00

10.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Panel C: Malaysia

Summary Statistics of Distribution1992 1994 1996

Minimum Value -56.66 -175.11 -67.75First Quartile 6.15 6.48 5.66

Second Quartile 11.68 11.13 10.30Third Quartile 18.46 17.34 16.44

Maximum Value 62.04 121.11 125.42

MalaysiaReturn on Invested Capital

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.005.00

10.0015.0020.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Panel D: Philippines

Summary Statistics of Distribution1992 1994 1996

Minimum Value -5.26 -11.14 -166.66First Quartile 4.28 2.78 1.32

Second Quartile 11.48 10.22 9.69Third Quartile 16.36 23.49 15.53

Maximum Value 45.87 71.10 39.07

PhilippinesReturn on Invested Capital

0

0.05

0.1

0.15

0.2

0.25

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Panel E: Taiwan

Summary Statistics of Distribution1992 1994 1996

Minimum Value -7.87 -18.97 -17.65First Quartile 4.01 5.49 3.52

Second Quartile 7.25 8.91 7.20Third Quartile 12.87 11.65 11.72

Maximum Value 34.94 48.15 50.04

TaiwanReturn on Invested Capital

0

0.05

0.1

0.15

0.2

0.25

0.3

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

5.00

10.00

15.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Panel F: Thailand

Summary Statistics of Distribution1992 1994 1996

Minimum Value -3.27 -40.02 -48.84First Quartile 8.68 5.62 3.60

Second Quartile 12.48 10.20 6.70Third Quartile 18.98 14.94 10.74

Maximum Value 102.31 46.39 51.71

ThailandReturn on Invested Capital

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.005.00

10.0015.0020.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Return on Invested Capital

0.00

5.00

10.00

15.00

20.00

25.00

30.00

Indones

ia

Korea

Mala

ysia

Philippin

es

Taiwan

Thailan

dBra

zilChile

Mex

ico

Per

cent

1992

1996

Indonesia Total Debt to Common Equity

0

0.05

0.1

0.15

0.2

0.25

0 30 60 90 120

150

180

210

240

270

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

50.00

100.00

150.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

KoreaTotal Debt to Common Equity

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0 30 60 90 120

150

180

210

240

270

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00100.00200.00300.00400.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

MalaysiaTotal Debt to Common Equity

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0 30 60 90 120

150

180

210

240

270

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

50.00

100.00

150.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

PhilippinesTotal Debt to Common Equity

0

0.05

0.1

0.15

0.2

0.25

0.3

0 30 60 90 120

150

180

210

240

270

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

50.00

100.00

150.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

TaiwanTotal Debt to Common Equity

0

0.05

0.1

0.15

0.2

0.25

0 30 60 90 120

150

180

210

240

270

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.0020.0040.0060.0080.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

ThailandTotal Debt to Common Equity

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0 30 60 90 120

150

180

210

240

270

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.0050.00

100.00150.00200.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Change in Total Debt to Common Equity

0.00

50.00

100.00

150.00

200.00

250.00

Indones

ia

Korea

Mala

ysia

Philippin

es

Taiwan

Thailan

dBra

zilChile

Mex

ico

Per

cent

1992

1996

Panel A: Indonesia

Summary Statistics of Distribution1992 1994 1996

Minimum Value 0.00 0.00 -80.23First Quartile 6.90 6.17 9.83

Second Quartile 17.39 14.01 20.54Third Quartile 24.09 25.17 36.20

Maximum Value 59.13 135.61 2106.18

Indonesia Ratio of Interest Payments to EBITDA

0

0.05

0.1

0.15

0.2

0.25

0.3

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.0010.0020.0030.0040.00

First Quartile Second Quartile Third Quartile

Per

cent 1992

1994

1996

Panel B: Korea

Summary Statistics of Distribution1992 1994 1996

Minimum Value 0.00 0.01 -6009.04First Quartile 39.67 32.43 34.07

Second Quartile 50.81 48.17 56.09Third Quartile 62.51 63.11 73.18

Maximum Value 2400.87 386.85 1442.69

KoreaRatio of Interest Payments to EBITDA

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.0020.0040.0060.0080.00

First Quartile Second Quartile Third Quartile

Per

cent 1992

1994

1996

MalaysiaRatio of Interest Payments to EBITDA

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.0010.0020.0030.0040.00

First Quartile Second Quartile Third Quartile

Per

cen

t 1992

1994

1996

Panel D: Philippines

Summary Statistics of Distribution1992 1994 1996

Minimum Value -22.27 -292.08 -1895.05First Quartile 3.67 0.00 0.00

Second Quartile 18.46 8.89 8.84Third Quartile 39.58 23.17 23.91

Maximum Value 328.39 198.69 346.83

PhilippinesRatio of Interest Payments to EBITDA

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Percentage

Fre

qu

ency 1992 1994 1996

Changes in Quartile Cutoffs

0.00

20.00

40.00

60.00

First Quartile Second Quartile Third Quartile

Per

cent 1992

1994

1996

Panel E: Taiwan

Summary Statistics of Distribution1992 1994 1996

Minimum Value -92.01 -43.26 -188.05First Quartile 5.57 5.53 5.15

Second Quartile 12.62 10.85 13.40Third Quartile 28.35 20.12 24.50

Maximum Value 478.75 366.18 166.97

TaiwanRatio of Interest Payments to EBITDA

0

0.05

0.1

0.15

0.2

0.25

0.3

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

10.00

20.00

30.00

First Quartile Second Quartile Third Quartile

Per

cent 1992

1994

1996

Panel F: Thailand

Summary Statistics of Distribution1992 1994 1996

Minimum Value -5.96 -363.96 -1365.43First Quartile 7.58 7.86 13.17

Second Quartile 14.48 16.53 26.37Third Quartile 26.48 29.00 42.74

Maximum Value 182.62 20248.59 3152.22

ThailandRatio of Interest Payments to EBITDA

0

0.05

0.1

0.15

0.2

0.25

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Percentage

Fre

qu

ency

1992 1994 1996

Changes in Quartile Cutoffs

0.00

20.00

40.00

60.00

First Quartile Second Quartile Third Quartile

Per

cent 1992

1994

1996

Change in Interest Payments to EBITD

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Indones

ia

Korea

Mala

ysia

Philippin

es

Taiwan

Thailan

dBra

zilChile

Mex

ico

Per

cent

1992

1996

Asian Bet

Measuring exchange rate exposure

• Traditional method:– Regression of company j in country i return on

FX change.

Rijt=b0ij+b1ijFXit + errorijt

Asian Bet

Measuring exchange rate exposure

• What about the case of Thailand?

• FX rate pegged to basket

• bijt=0

• Does this mean no FX exposure?

Asian Bet

VaR method

• Go through balance sheet item by item

• Categorize all debt by denomination

• For a 10% devaluation, what is the loss in market value estimated in the debt

• This approximates the impact on firm’s capitalization

Asian Bet

VaR method issues:• FX impacts both revenues and costs, not

just value of debt• FX as a common country factor could have

an adverse effect on entire economy, further depressing equity value

• FX as a country factor could induce a regional contagion