Are the ASEAN stock markets integrated with the US market ? new evidence from wavelet coherence

Musa, Mustafa and Masih, Mansur (2016): Are the ASEAN stock markets integrated with the US market ? new evidence from wavelet coherence.

Abstract

It is generally believed that the US subprime crisis affected the ASEAN stock markets heavily. The main purpose of this paper is to look at the effects and performance of the stock markets of the big three ASEAN member countries such as Singapore, Malaysia and Indonesia against the influence of a larger economy such as, the United States. The method considered appropriate for the analysis is wavelet coherence. The findings tend to indicate that the co-movements between all these stock markets change significantly over time and across frequencies. We find that there is a strong coherence between the US stock market and the Singaporean, Malaysian and Indonesian stock markets. Furthermore, we find that there is a strong coherence between Singaporean and Malaysian markets in the long term. The results are intuitive and plausible with strong policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: market integration, ASEAN, USA, wavelet coherence
• 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; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Caraiani, P., (2012) Money and output: New evidence based on wavelet coherence. Economics Letters, 116(3), 547-550

Dahir, A. M., Mahat, F., Hisyam, N., Bany-Ariffin, A.N. (2018), Revisiting the dynamic relationship between exchange rates and stock prices in BRICS countries: A wavelet analysis, Borsa Istanbul Review, 18(2), 101 -113

Dewandaru, G., Masih, R. and Masih, M. (2016), Contagion and Interdependence across Asia-Pacific Equity Markets: An Analysis Based on Multi-Horizon Discrete and Continuous Wavelet Transformations, International Review of Economics and Finance, 43, 363 -377

Dewandaru, G, Masih, R. and Masih, M. (2016), What Can Wavelets Unveil About the Vulnerabilities of Monetary Integration? A Tale of Eurozone Stock Markets, Economic Modelling, 52, 981 - 996

Masih, M., Alzahrani, M. and Al-Titi, O. (2010), Systematic Risk and Time Scales : New Evidence from an Application of Wavelet Approach to the Emerging Gulf Stock Markets, International Review of Financial Analysis, 19 (1), 10 – 18

Ramsey, J. and Lampart, C., (1998), Decomposition of economic relationships by timescale using wavelets, Macroeconomic Dynamics , 2(1), 49-71.

Saiti, B., Bacha, O.I. and Masih, M. (2016), Testing the Conventional and Islamic Financial Market Contagion: Evidence from Wavelet Analysis, Emerging Markets Finance and Trade, 52(8), 1832 -1849

Schleicher, C. (2002), An Introduction to Wavelets for Economists, Bank of Canada, Staff Working Paper, No. 2002 -3

Tiwari, A. Mutascu, M. and Andries, A., (2013), Decomposing time-frequency relationship between producer price and consumer price indices in Romania through wavelet analysis. Economic Modelling, 31(19), 151-159.

Tsai, S.L. and Chang, T. (2018), The Comovement between Money and Economic Growth in 15 AsiaPacific Countries: Wavelet Coherency Analysis in Time Frequency Domain, Romanian Journal of Economic Forecasting, 21(2), 63 -78