Stock market comovement among the ASEAN-5 : a causality analysis

Mohamed, Hazik and Masih, Mansur (2017): Stock market comovement among the ASEAN-5 : a causality analysis.

Abstract

This paper investigates the linkages between stock markets by applying the co-integration framework developed by Engle and Granger (1987) on weekly data beginning in the new millennium on a system of five ASEAN stock price indices, namely Singapore, Malaysia, Indonesia, Thailand and the Philippines. Given the new challenges in the new millennium, like political instability as well as the ability to cope with recurring and increasingly devastating natural disasters within the region, the study re-examined the co-integration trend between the ASEAN-5 markets. This study differs from other studies by incorporating the effects from the 2013 Typhoon Haiyan (known as Typhoon Yolanda in the Philippines) that ravaged 4 countries (Micronesia, Southern China, Philippines and Vietnam) and caused an estimated US$1.5 billion in damages, by implementing time series techniques including Johansen test for co-integration followed by the vector error correction and variance decomposition method which determines the exogeneity and endogeneity of the stock markets. The study finds that all ASEAN-5 stock market remains co-integrated with the stock markets of its neighbours including Philippines that experienced the 2013 typhoon. From an investment standpoint, findings imply that the long-run diversification benefits that can be earned by investors in the ASEAN region tend to diminish over time. Therefore, it is in the onus of the policy makers of ASEAN-5 nations and its other neighbours to work together to develop pre-emptive action plans and policies, as well as early warning disaster systems to mitigate the impact of natural disasters that will cause market fluctuations and exposures to regional market and environmental risks.

• Item Type: MPRA Paper
• Language: English
• Keywords: ASEAN market integration, Co-integration, Granger causality, Stock markets, Typhoon Haiyan
• 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

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