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International Linkage Of Asean Stock Prices: An Analysis Of Response Asymmetries

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  • Mansor H. IBRAHIM

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Abstract

The paper evaluates response asymmetries in the international linkage of five founding members of ASEAN, namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand. More specifically, we assess whether these markets react differently to market upturns and market downturns of two developed markets – US and Japan. Using simple regression and VAR models, we document the following results. First, in line with many studies on international interdependencies of equity prices, the US market is more dominant than the Japanese market in influencing the ASEAN markets. Second, the evidence strongly suggests significant responses of the ASEAN markets to the US market downturns. However, positive changes in the two advanced market indices do not seem to impact significantly on the ASEAN markets. Third, the pattern of responses based on impulse response functions further substantiate asymmetric responses of these markets to positive and negative shocks in the US markets. Lastly, the evidence for response asymmetry is stronger when only pre-Asian crisis sample is used. Our results, thus, suggest that the benefits of international portfolio diversification may not be forthcoming when they are needed most, that is, during market decline. Moreover, the ASEAN markets seem vulnerable to international financial crisis.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 6 (2006)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:6:y:2006:i:3_16

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Related research

Keywords: Response Asymmetries; ASEAN markets; Impulse Response Functions;

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References

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  1. Sheng, Hsiao-Ching & Tu, Anthony H., 2000. "A study of cointegration and variance decomposition among national equity indices before and during the period of the Asian financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 345-365, December.
  2. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
  3. Hall, S G, 1989. "Maximum Likelihood Estimation of Cointegration Vectors: An Example of the Johansen Procedure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 213-18, March.
  4. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-57, May.
  5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  6. Bahng, Joshua Seungwook & Shin, Seung-myo, 2003. "Do stock price indices respond asymmetrically?: Evidence from China, Japan, and South Korea," Journal of Asian Economics, Elsevier, vol. 14(4), pages 541-563, August.
  7. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  8. Pagan, Jose A. & Soydemir, Gokce A., 2001. "Response asymmetries in the Latin American equity markets," International Review of Financial Analysis, Elsevier, vol. 10(2), pages 175-185.
  9. Johansen, Soren, 1992. "Testing weak exogeneity and the order of cointegration in UK money demand data," Journal of Policy Modeling, Elsevier, vol. 14(3), pages 313-334, June.
  10. Lessard, Donald R, 1973. "International Portfolio Diversification: A Multivariate Analysis for a Group of Latin American Countries," Journal of Finance, American Finance Association, vol. 28(3), pages 619-33, June.
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Cited by:
  1. Rangan GUPTA & Roula INGLESI-LOTZ, 2012. "Macro Shocks and Real US Stock Prices with Special Focus on the “Great Recession”," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(2).

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