Comovement of stock markets of Singapore and its major Asian trading partners

Rahim, Adam Mohamed and Masih, Mansur (2018): Comovement of stock markets of Singapore and its major Asian trading partners.

Abstract

Globalisation that resulted in increased interconnectivity across stock markets has brought implications towards the investment strategies of investors. Given the 2008 financial crisis and the 2011 Japan earthquake, it is unsure whether or not cointegration would still remain evident between markets. This study re-examines the cointegration between Singaporean stock markets with its major Asian trading partners (China, Japan and Malaysia) after the 2008 crisis but differs from other studies by incorporating the effects from the 2011 Japan earthquake by implementing standard time series techniques including Johansen test for cointegration followed by the vector error correction and variance decomposition method which determines the exogeneity and endogeneity of the stock markets. The study finds that the Singaporean stock market remains cointegrated with the stock markets of its major Asian trading partners including Japan that experienced the 2011 earthquake. Findings tend to imply that the long-run diversification benefits that can be earned by the investors in the Asian region tend to diminish. Therefore there is a necessity for the policy makers of Singapore and its major Asian trading partners to formulate policies to mitigate the impact of market fluctuations which would in turn facilitate the management of exposures to risk in the long run.

• Item Type: MPRA Paper
• Language: English
• Keywords: comovement of stock markets, Singapore, major trading partners, VECM, VDC
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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