Oh, Swee-Ling and Lau, Evan and Puah, Chin-Hong and Abu Mansor, Shazali (2010): Volatility Co-movement of ASEAN-5 Equity Markets.
Download (196kB) | Preview
Purpose – Economic cross-linkages and the increased co-movement of asset prices across international markets are important outcomes as the result of globalization. Hereby, the nature of international stock markets and the extent to which the 1997-1998 East Asian turmoil had affected the market relationship of five countries of Association of Southeast Asian Nations (ASEAN-5) remain as probing questions. Design/methodology/approach – We resort to the standard time series econometrics analysis. These include the unit root, cointegration and the Granger causality tests. Hereby, further empirical analyzes is conducted upon two sub-periods of interest: (1) pre-crisis period from 1987:1 to 1997:7 and (2) post-crisis period from 1997:8 to 2007:12. This is to allow for possible transitional motion leading to and departing from the crisis. Findings – Using an array of econometrics analysis upon the stock price volatility series, we found partial market integration for the pre-crisis; whereas in the post-crisis, complete integration prevails. Hence, the financial meltdown in 1997 is said to be a contagion led crisis as markets integrate well off after the crisis than prior to it. Nonetheless, long run portfolio asset diversification benefits across the ASEAN-5 basin are reduced as markets are integrated in both the pre- and post-crisis. Originality/value – The paper is of value by showing to uncover the issue of interdependence of stock market integration focusing on the ASEAN-5 economies. The formation of the ASEAN Investment Area (AIA- 1998) parallel with the establishment of a developed ASEAN Index-Financial Times Stock Exchange (FTSE) regional index is viable to foster deeper regional market convergence.
|Item Type:||MPRA Paper|
|Original Title:||Volatility Co-movement of ASEAN-5 Equity Markets|
|Keywords:||ASEAN-5, Portfolio Diversification, Volatility co-movement|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
|Depositing User:||Evan Lau|
|Date Deposited:||21. Apr 2010 21:51|
|Last Modified:||14. Feb 2013 20:54|
Azman-Saini, W.N.W., Azali, M., Habibullah, M.S. and Matthews, K.G. (2002), “Financial integration and the ASEAN-5 equity markets”, Applied Economics, Vol. 34, pp. 2283-2288.
Bekaert, G. and Harvey, C.R. (1995), “Emerging equity market volatility”, NBER Working Paper, 5307.
Bekeart, G. and Harvey, C.R. (2002), “Research in emerging markets finance: looking to the future”, Emerging Markets Review, Vol. 3, pp. 429-448.
Bollerslev, T. (1986), “Generalized autoregressive conditional heteroskedasticity”, Journal of Econometrics, Vol. 31, pp. 307-327.
Boyer, B.H., Kumagai, T. and Yuan, K. (2006), “How do crises spread? Evidence from accessible in inaccessible stock indices”, Journal of Finance, Vol. 61, pp. 957–1003.
Dwyer, G. and Wallace, M. (1992), “Cointegration and Market Efficiency”, Journal of International Money and Finance, Vol. 11, pp. 318-327.
Engle, R.F. (1982), “Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, Vol. 50, pp. 987-1007.
Ewing, B.T., Payne, J.E. and Sowell, C. (1999), “NAFTA AND North American stock market linkages: An empirical note”, North American Journal of Economics and Finance, Vol. 10, pp. 443-451.
Fernández-Serrano, J.L. and Sosvilla-Rivero, S. (2001), “Modelling evolving long-run relationships: the linkages between stock markets in Asia”, Japan and the World Economy, Vol. 13, pp. 145-160.
Forbes, W.P. (1993), “The integration of European stock markets: The case of the banks”, Journal of Business Finance and Accounting, Vol. 20, pp. 306-686.
Grubel, H. (1968), “Internationally diversified portfolios: Welfare gains and capital flows”, American Economic Review, Vol. 58, pp. 89 - 94.
Hunter, D.M. (2006), “The evolution of stock market integration in the post-liberalization period- A look at Latin America”, Journal of International Money and Finance, Vol. 25, pp. 795-826.
Jang, H and Sul, W. (2002), “The Asian financial crisis and the co-movement of Asian stock markets”, Journal of Asian Economics, Vol. 13, pp. 94-104.
Jochum, C., Kirchgässner, G. and Platek, M. (1998), “A Long-Run Relationship between Eastern European Markets? Cointegration and the 1997/98 Crisis in Emerging Markets”, Journal of International Financial Markets, Institutions and Money, Vol. 10, pp. 131-150.
Johansen, S. and Juselius, K. (1990), “Maximum likelihood estimation and inference on cointegration with the applications to the demand for money”, Oxford Buletin of Economics and Statistics, Vol. 52, pp. 169-209.
Kasa, K. (1995), “Comovements among national stock markets”, FRBSF Economic Review, Vol. 1, pp. 14-20.
Koutmos, G. and Booth, G.G. (1995), “Asymmetric volatility transmission in international stock markets”, Journal of International Money and Finance, Vol. 14, pp. 747-762.
Kwiatkowski, D., Phillips, P., Schmidt, P. and Shin, Y. (1992), “Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we the economic time series have a unit root?”, Journal of Econometrics, Vol. 54, pp. 159-178.
Levy, H. and Sarnat, M. (1970), “International diversification of investment portfolios”, American Economic Review, Vol. 60, pp. 668-675.
Manning, N. (2002), “Common Trends and Convergences? South East Asian Equity Markets, 1988-1999”, Journal of International Money and Finance, Vol. 21, pp. 183-202.
Markowitz, H.M. (1952), “Portfolio Selection”, Journal of Finance, Vol. 6, pp. 77-91.
Masih, A.M.M and Masih, R. (1999), “Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets”, Pacific-Basin Finance Journal, Vol. 7, pp. 251-282.
Masih, R. and Masih, A.M.M. (2001), “Long and short term dynamic causal transmission amongst international stock markets”, Journal of International Money and Finance, Vol. 20, pp. 563-587.
Masih, A.M.M and Masih, R. (2002), “Propagative causal price transmission among international stock markets: evidence from the pre- and post globalization period”, Global Finance Journal, Vol. 13, pp. 63-91.
Narayan, P.K. and Smyth, R. (2005), “Cointegration of stock market between New Zealand, Australia and the G7 economies: searching for co-movement under structural change”, Australian Economic Papers, Vol. 44, pp. 231-247.
Phillips, P.C.B. and Perron, P. (1988), “Testing for a unit root in time series regression, Biometrika, Vol. 75, pp. 335–346.
Schwert, G.W. (1988), “Why does stock market volatility change over time?”, NBER Working Paper Series, 2798.
Tang, G.N.Y. and Mak, B.S.C. (1995), “A note on market integration before and after the stock crash in October 1987”, Applied Economics Letters, Vol. 2, pp. 151-155.
Tobin, J. (1958), “Liquidity preference as behavior towards risk, Review of Economics Studies, Vol. 25, pp. 65-86.
Wheatley, S. (1988), “Some tests of international equity integration”, Journal of Financial Economics, Vol. 21, pp. 177-212.
Yusof, M. and Majid, A. (2006), “Who moves the Malaysian stock market”, Gadjah Mada International Journal of Business, Vol. 8, pp. 367-406.