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Are Stock Markets Integrated? Evidence from a Partially Segmented ICAPM with Asymmetric Effects

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  • Mohamed El Hedi Arouri

    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans, EconomiX - CNRS : UMR7166 - Université de Paris X - Nanterre)

Abstract

In this paper, we test a partially segmented ICAPM for two developed markets, two emerging markets and World market, using an asymmetric extension of the multivariate GARCH process of De Santis and Gerard (1997,1998). We find that this asymmetric process provides a significantly better fit of the data than a standard symmetric process. The evidence obtained from the whole period and sub-periods analysis supports the financial integration hypothesis and suggests that domestic risk is not a priced factor.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00387109.

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Date of creation: 2006
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Handle: RePEc:hal:wpaper:hal-00387109

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  1. Barr, David G. & Priestley, Richard, 2004. "Expected returns, risk and the integration of international bond markets," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 71-97, February.
  2. De Santis, Giorgio & Gerard, Bruno, 1997. " International Asset Pricing and Portfolio Diversification with Time-Varying Risk," Journal of Finance, American Finance Association, vol. 52(5), pages 1881-1912, December.
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  7. Arshanapalli, Bala & Doukas, John, 1993. "International stock market linkages: Evidence from the pre- and post-October 1987 period," Journal of Banking & Finance, Elsevier, vol. 17(1), pages 193-208, February.
  8. Geert Bekaert & Campbell R. Harvey, 2000. "Foreign Speculators and Emerging Equity Markets," Journal of Finance, American Finance Association, vol. 55(2), pages 565-613, 04.
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  12. Lau, Sie Ting & McInish, Thomas H., 1993. "Comovements of international equity returns: A comparison of the pre- and post-October 19, 1987, periods," Global Finance Journal, Elsevier, vol. 4(1), pages 1-19.
  13. Phylaktis, Kate & Ravazzolo, Fabiola, 2005. "Stock prices and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1031-1053, November.
  14. Phylaktis, Kate & Ravazzolo, Fabiola, 2002. "Measuring financial and economic integration with equity prices in emerging markets," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 879-903, November.
  15. Bekaert, Geert, 1995. "Market Integration and Investment Barriers in Emerging Equity Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 75-107, January.
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  17. Ratanapakorn, Orawan & Sharma, Subhash C., 2002. "Interrelationships among regional stock indices," Review of Financial Economics, Elsevier, vol. 11(2), pages 91-108.
  18. Gerard, Bruno & Thanyalakpark, Kessara & Batten, Jonathan A., 2003. "Are the East Asian markets integrated? Evidence from the ICAPM," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 585-607.
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Cited by:
  1. Abid, Ilyes & Kaabia, Olfa & Guesmi, Khaled, 2014. "Stock market integration and risk premium: Empirical evidence for emerging economies of South Asia," Economic Modelling, Elsevier, vol. 37(C), pages 408-416.
  2. Khaled Guesmi & Ilyes Abid & Mohamed Hedi Arouri & Frédéric Teulon, 2014. "On the determinants of equity international risk premium : Are emerging zones different ?," Working Papers 2014-322, Department of Research, Ipag Business School.
  3. Salma Fattoum & Khaled Guesmi & Bruno-Laurent Moschetto, 2014. "The Evolution of Risk Premiums in Emerging Stock Markets: The Case of Latin America and Asia Region," Working Papers 2014-132, Department of Research, Ipag Business School.

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