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Interdependence of international stock markets: Malaysian case

Author

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  • Cheah, Ping Yean
  • Masih, Mansur

Abstract

The focus of this paper is to investigate the relationship between Malaysia’s stock market and the five largest international markets. The methodology employed uses various unit root tests, and Johansen’s cointegration test to determine if all variables move together in the long run. This is followed by the vector error correction modeling, variance decompositions, and impulse response functions to determine the direction of Granger-causality and relative exogeneity. Initial findings indicate limited benefits of international diversification for the Malaysian investor. Further analysis of the Granger-causal chain seems to point towards the European markets as bellwether indices for the Malaysian investor. While recognising the common fact that the US market is exogenous, as evidenced by various other studies, the Malaysian investor should monitor closely the French and German markets. Other than the US market, the French and German markets are likely to be more exogenous than the UK FTSE100 market, and therefore, should be considered as bellwether indices for the Malaysian investors

Suggested Citation

  • Cheah, Ping Yean & Masih, Mansur, 2017. "Interdependence of international stock markets: Malaysian case," MPRA Paper 110196, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110196
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    References listed on IDEAS

    as
    1. Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
    2. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
    3. Yin-Wong Cheung & Kon Lai, 1999. "Macroeconomic determinants of long-term stock market comovements among major EMS countries," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 73-85.
    4. Bessler, David A. & Yang, Jian, 2003. "The structure of interdependence in international stock markets," Journal of International Money and Finance, Elsevier, vol. 22(2), pages 261-287, April.
    5. Francis, Bill B. & Leachman, Lori L., 1998. "Superexogeneity and the dynamic linkages among international equity markets," Journal of International Money and Finance, Elsevier, vol. 17(3), pages 475-492, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    stock market interdependence; VECM; VDC; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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