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Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection

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Author Info
Herwany, Aldrin
Febrian, Erie

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Abstract

Both practitioners and academicians demand a linkage model across financial markets, particularly among regional capital markets, for both risk management and portfolio selection purposes. Researchers frequently use co-integration and causality analysis in investigating the dependence or co-movement of three or more stock markets in different countries. However, they conducted the causality in mean tests but not the causality in variance tests. This study assesses the co-integration and causal relations among seven developed Asian markets, i.e Tokyo, Hongkong, Korea, Taiwan, Shanghai, Singapore, and Kuala Lumpur stock exchanges, using more frequent time series data. It employs the recently developed techniques for investigating unit roots, co-integration, time-varying volatility, and causality in variance. For estimating portfolio market risk, this study employs Value-at-Risk with delta-normal approach. The results show whether fund managers would be able to diversify their portfolio in these developed stock markets either in long run or short run.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10259.

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Date of creation: 27 Aug 2008
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Handle: RePEc:pra:mprapa:10259

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Related research
Keywords: Risk Management; Causality; Co-integration; Asian Stock Markets;

Find related papers by JEL classification:
D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
G1 - Financial Economics - - General Financial Markets
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G0 - Financial Economics - - General

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References listed on IDEAS
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Canegrati, Emanuele, 2008. "In Search of Market Index Leaders: Evidence from World Financial Markets," MPRA Paper 11292, University Library of Munich, Germany. [Downloadable!]
  2. Canegrati, Emanueke, 2008. "In Search of Market Index Leaders: Evidence from Asian Markets," MPRA Paper 11246, University Library of Munich, Germany. [Downloadable!]
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