International Equity Flows and Speculative Bubbles: Some Empirical Evidence for South-East Asia

We analyzed the links between international equity flows and speculative bubbles in the equity markets of six South-East Asian countries over the period 1991-2006. Based on a cointegration analysis, we found signi?cant equilibrium cointegration links between international equity flows and speculative bubbles. Before the Asian economic and financial crisis, an increase in speculative bubbles was accompanied by a decrease in net capital outflows. Our results are consistent with theories that predict that speculative bubbles absorb domestic savings in financially underdeveloped countries.