Aspects of futures market efficiency in Malaysia during the Asian crisis: an analysis of futures-based contagion

We present evidence of the efficiency in an emergent futures market before, during and following the Asian crisis. Our approach is to comprehensively test price formation and informational efficiency in markets which play a leading role in the price discovery process. Our contribution is to examine the impact of the Asian crisis from a derivative markets perspective, thereby furthering the debate regarding underlying market efficiency, and to present a set of stylised facts to inform the wider research agenda on capital market operations in Asia. A further motivation is to determine if the fundamental linkages which drive futures markets at an international level were in any way disrupted, or even disconnected, during the crisis. Our findings suggest that such linkages were improved following the crisis and we provide statistical evidence in support of our contention. We conclude that, despite the pre-conditions for the transmission of contagion being in-place, futures-based contagion could not have occurred because of the causal linkages involved.