Munich Personal RePEc Archive

Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection

Herwany, Aldrin and Febrian, Erie (2008): Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection.

[img]
Preview
PDF
MPRA_paper_10259.pdf

Download (352Kb) | Preview

Abstract

Both practitioners and academicians demand a linkage model across financial markets, particularly among regional capital markets, for both risk management and portfolio selection purposes. Researchers frequently use co-integration and causality analysis in investigating the dependence or co-movement of three or more stock markets in different countries. However, they conducted the causality in mean tests but not the causality in variance tests.

This study assesses the co-integration and causal relations among seven developed Asian markets, i.e Tokyo, Hongkong, Korea, Taiwan, Shanghai, Singapore, and Kuala Lumpur stock exchanges, using more frequent time series data. It employs the recently developed techniques for investigating unit roots, co-integration, time-varying volatility, and causality in variance. For estimating portfolio market risk, this study employs Value-at-Risk with delta-normal approach. The results show whether fund managers would be able to diversify their portfolio in these developed stock markets either in long run or short run.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.