Ardliansyah, Rifqi (2012): Stock Market Integration and International Portfolio Diversification between U.S. and ASEAN Equity Markets.
Download (2MB) | Preview
The paper empirically analyzes stock market integration and the benefit possibilities of international portfolio diversification across the Southeast Asia (ASEAN) and U.S. equity markets. It employs daily sample of 6 ASEAN equity market indices and S&P 500 index as a proxy of U.S. market index from years 2001 to 2010. The paper examines the stock market return interdependence from three different perspectives which are ‘long-term’, ‘short-term’ and ‘dynamic’ perspectives. In order to investigate the long-run interdependencies, the Johansen-Juselius multivariate co-integration test and the bivariate Engle-Granger 2-step method were used. In respect to the short-run interdependencies, the Generalized Impulse Response Function (GIRF) and the Generalized Forecast Error Variance Decomposition (GFEVD) are employed. Finally, to assess the dynamic structure of equity market co-movements, the Dynamic Conditional Correlation (DCC) model is engaged. Results suggest that in the long-run, there are no potential benefits in diversifying investment portfolios across the ASEAN and U.S. market since there are evidences of cointegration among them. However, the potential benefits of international portfolio diversification can be seen throughout the short-run-period. Subsequently, the DCC findings suggest an overall proposition that by the end of 2010, most of the ASEAN markets do not share the U.S. stock price movement.
|Item Type:||MPRA Paper|
|Original Title:||Stock Market Integration and International Portfolio Diversification between U.S. and ASEAN Equity Markets|
|English Title:||Stock Market Integration and International Portfolio Diversification between U.S. and ASEAN Equity Markets|
|Keywords:||Market Cointegration, International Portfolio Diversification, U.S., ASEAN, ‘long-term’, ‘short-term’ and ‘dynamic’ perspectives, Johansen-Juselius Cointegration, Bivariate Engle-Granger method, GIRF, GFEVD and DCC|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C87 - Econometric Software
N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C35 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
|Depositing User:||Rifqi Ardliansyah|
|Date Deposited:||16. Oct 2012 21:15|
|Last Modified:||22. Aug 2015 05:13|
Agrios, V. M., 2006. Comovement of European Stock Markets: The Effects of the EMU on European Stock Market Integration, Rotterdam: Erasmus School of Economics.
ASEAN Secretariat, 2009. ASEAN Finance Ministers Meeting (AFMM). [Online] Available at: http://www.asean.org/19588.htm [Accessed 18 February 2012].
Azman-Saini, W. A. M. H. M. a. M. K., 2002. Financial integration and the ASEAN-5 equity markets. Applied Economics, pp. Vol. 34, pp. 2283-2288..
Bartram, S. M. & Dufey, G., 2001. International Portfolio Investment: Theory, Evidence, and Institutional Framework. Conventry: Social Science Research Network.
Beck, T., Feyen, E., Ize, A. & Moizeszowicz, F., 2008. Benchmarking Financial Development. Policy Research Working Paper, p. Working paper 4638.
Bergstrom, C., K., R. & P., S., 1993. Asset Pricing with In- and Outflow Constraints; Theory and Empirical Evidence from Sweden. Journal of Business Finance and Accounting , pp. 865-880.
Bonfigliolo, A. & Favero, C. A., December 2005. Explaining Co-movements Between Stock Markets: the case of US and Germany. Journal of International Money and Finance , pp. Volume 24, Issue 8, Pages 1299–1316.
Brooks, C., 2008. Introductory Econometrics for Finance. 2nd ed. Cambridge: Cambridge University Press.
Bunthea, L., 2011. Cambodia Gets Ready For Stock Market. Economy & Business, 1-15 February, p. 23.
Cheng, W. L. G. a. L. K., 2003. Financial crisis and intertemporal linkages across the ASEAN-5 stock markets. FEA Working Paper, pp. No. 2003-4..
Click, R. P. M., 2005. Stock market integration in ASEAN after the Asian financial crisis. Journal of Asian Economics, pp. Vol.16 No. 1, pp. 5-28..
Daly, K. J., 2003. Southeast Asian stock market linkages: evidence from pre- and post-October 1997. ASEAN Economic Bulletin, pp. Vol. 20 No. 1, pp. 75-85..
Dunis, C. a. S. G., 2005. 16. Dunis, C.L.Emerging markets of South-East and Central Asia: Do they still offer a diversification benefit?. Journal of Asset Management, pp. Vol. 6 No. 3, pp. 168-190..
Elyasiani, E., Perera, P. & Puri, T. N., 1998. Interdependence and Dynamic Linkages between Stock Markets of Sri Lanka and its Trading Partners. Journal of Multinational Financial Management , 8(1), pp. 89-101.
Engle, R. F., 1982. Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica , 50(4), pp. 987-1007.
Engle, R. F., 2002. Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models. Journal of Business and Economic Statistics , 20(3), pp. 339-350.
Engle, R. F. & Granger, C. W. J., 1987. Cointegration and Error Correction Representation, Estimation and Testing. Econometrica, Volume 55, pp. 251-276.
Fane, G. & McLeod, R. H., 2002. Banking collapse and restructuring in Indonesia, 1997-2001. Cato, p. Volume 22. No. 2.
Gerard, B., Hillion, P. & Roon, F. d., 2002. International Portfolio Diversification: Industry, Country, and Currency Effects Revisited.
Ghosh, J., 2005. The economic and social effects of financial liberalization: A primer for developing countries, New York, USA: Department of Economic and Social Affairs, United Nations.
Hansen, P. R. & Lunde, A., 2005. A Forecast Comparison of Volatility Models: Does Anything Beat A GARCH (1,1)?. Journal of Applied Econometrics, Volume 20, pp. 873-889.
Hee, N. T., 2002. Stock market linkages in South East Asia. Asian Economic Journal, pp. Vol. 16 No. 4, pp. 353-377..
Her Majesty Revenue & Customs, 2012. Countries with Double Taxation Agreements with the UK. [Online] Available at: http://www.hmrc.gov.uk/cnr/withholding-tax.pdf [Accessed 01 August 2012].
Ibrahim, M., 2000. Financial integration and diversification among ASEAN equity markets: a Malaysia perspective. Capital Market Review, pp. Vol. 8 No.1, pp. 25-40..
Ibrahim, M., 2005. International linkage of stock prices: the case of Indonesia. Management Research News, 28(4), pp. 93-115.
Ibrahim, M. H., 2006. Financial Integration and International Portfolio Diversification: US, Japan and ASEAN Equity Markets. Journal of Asia-Pacific Business, 7(1), pp. 5-23.
Johansen, S., 1988. Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control, Volume 12, pp. 231-254.
Johansen, S. & Juselius, K., 1990. Maximum Likelihood Estimation and Inference on Cointegration - With Application to the Demand for Money. Oxford Bulletin of Economics and Statistics, Volume 52, pp. 169-210.
Jorion, P., July 1985. International Portfolio Diversification with Estimation Risk. The Journal of Business, Vol. 58, No.3 , pp. 259-278.
Kim, J. H. & Shamsuddin, A., 2008. Are Asian stock markets efficient? Evidence from new multiple variance ratio tests. Journal of Empirical Finance, pp. vol. 15, issue 3, pages 518-532.
Kim, S. J., Moshirian, F. & Wu, E., 2005. Dynamic Stock Market Integration Driven by the European Monetary Union: An Empirical Analysis. Journal of Banking and Finance, Volume 29, pp. 2475-2502.
Lao Security Exchange, 2011. The History of LSX. [Online] Availableat:http://www.lsx.com.la/en/about/ceo.jsp [Accessed 18 February 2012].
M. Shabri Abd. Majid, A. K. M. M. a. M. A. O., 2007. Interdepence of ASEAN-5 Stock Markets from the US and Japan. Social Science Research Network, pp. 1-25.
Palac-McMiken, E. D., 1997. An examination of ASEAN stock market. ASEAN Economic Bulletin, pp. Vol 13 No 3, pp. 299-310..
Pesaran, H. H. & Shin, Y., 1998. Generalized Impulse Response Analysis in Linear Multivariate Models. Economic Letters, Volume 58, pp. 17-29.
Pill, H. & Pradhan, M., November 1995. Financial indicators and financial change in Africa and Asia. IMF Working Paper, p. No. 95/123.
Radelet, S., 1999. From Boom to Bust: Indonesia's Implosion. A New Frontier: Redefining China's Boundaries, Volume 3, Issue 1, Winter, pp. 63-67.
Sarkissian, S. & Schill, M. J., 2004. The Overseas Listing Decision: New Evidence of Poroximity Preference. The Review of Financial Studies , 17(3), pp. 769-809.
Shimada, T. & Yang, T., 2010. Challenges and Developments in the Financial Systems of the Southeast Asian Economies. OECD Journal: Financial Market Trends, pp. 137-159.
Sims, C., 1980. Macroeconomics and Reality. Econometrica, Volume 48, pp. 1-48.
Solnik, B., 2000. International Investments. 4th ed. Reading: Addison-Weasley.
Stock, J. H. & Watson, M. W., 2001. Vector Autoregression. The Journal of Economic Perspective , pp. Vol. 15, No. 4, pp. 101-115.
Suhartono, H., 2012. Myanmar says it will put stability ahead of economy: report, Singapore: Reuters.
Yoshida, Y., 2011. Stock Market Linkage between Asia and the United States in Two crises: Smooth-Transition Correlation VAR-GARCH Approach. In: Frontiers of Economics and Globalization. s.l.:Emerald , pp. 53-78.