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Efficiency, Cointegration and Contagion in Equity Markets: Evidence from China, Japan and South Korea

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  • A.S.M. Sohel Azad

Abstract

This paper empirically examines whether three East Asian stock markets, namely, those of China, Japan and South Korea, are individually and/or jointly efficient, and whether contagion exists between the cointegrated markets. While individual market efficiency is examined through testing for the random walk hypothesis, joint market efficiency is examined through testing for cointegration and contagion. The present study finds that the hypothesis of individual market efficiency is strongly rejected for the Chinese stock market, but not for the Japanese and the South Korean stock markets. However, when testing for cointegration, market efficiency is strongly rejected for all these markets. We take a simple case of contagion and find that although there is a long-term relationship among the three markets, the contagion hypothesis cannot be rejected only between Japanese and South Korean stock markets, indicating short-run portfolio diversification benefits from these two markets. Copyright 2009 The Author. Journal compilation 2009 East Asian Economic Association and Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by East Asian Economic Association in its journal Asian Economic Journal.

Volume (Year): 23 (2009)
Issue (Month): 1 (03)
Pages: 93-118

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Handle: RePEc:bla:asiaec:v:23:y:2009:i:1:p:93-118

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Cited by:
  1. Guidi, Francesco, 2010. "Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets," MPRA Paper 19853, University Library of Munich, Germany.
  2. repec:ipg:wpaper:201406 is not listed on IDEAS
  3. Azad, A.S.M. Sohel & Azmat, Saad & Fang, Victor & Edirisuriya, Piyadasa, 2014. "Unchecked manipulations, price–volume relationship and market efficiency: Evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 30(C), pages 51-71.
  4. Lean, Hooi Hooi & Teng, Kee Tuan, 2013. "Integration of world leaders and emerging powers into the Malaysian stock market: A DCC-MGARCH approach," Economic Modelling, Elsevier, vol. 32(C), pages 333-342.
  5. Khaled Guesmi & Frédéric Teulon, 2013. "Regional Equity Risk Premium Convergence: The case of Japan," Working Papers 2013-006, Department of Research, Ipag Business School.
  6. repec:ipg:wpaper:6 is not listed on IDEAS

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