THE IMPACTS OF CENTRAL BANK’S TRANSPARENCY ON STOCK MARKET VOLATILITY IN SOUTHEAST ASIA: A CROSS-COUNTRY ANALYSIS

DOI: https://doie.org/10.65985/APER.2025738272

Authors:

Sheng-HUNG CHEN, Dariimaa GANBAT, Bo-Yu CHEN

Keywords:

Central Bank’s Transparency; Stock Market Volatility; Panel Data with Random Effect

Abstract:

This study investigates the impact of central bank transparency on stock market volatility across eight Southeast Asian economies from 2004 to 2020. Employing a novel Central Bank Transparency Index (CNTI) and a panel-based random effects model estimated via maximum likelihood, we find robust evidence that enhanced transparency significantly reduces stock return volatility. The effect remains stable across specifications that control for market structure, monetary policy conditions, and cross-border capital flows. Country-level analysis reveals considerable heterogeneity, with transparency exhibiting the most pronounced volatility-dampening effects in emerging and financially open markets, such as Singapore, China, and the Philippines. In contrast, developed markets like Japan and South Korea exhibit limited marginal responsiveness, and India presents a notable anomaly where transparency appears to increase volatility, possibly reflecting issues of communication inconsistency or limited policy credibility. Notably, even during the 2007–2008 global financial crisis, transparency retains a net stabilizing influence, although its effectiveness diminishes under systemic stress. These findings underscore the conditional nature of transparency as a policy instrument—its impact is shaped not only by the content of disclosure but also by the institutional, structural, and behavioral context in which it is received. Our results carry substantial implications for the design of communication strategies in modern monetary policy frameworks.

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