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Measuring the Common Component of Stock Market Fluctuations in the Asia-Pacific Region

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  • Mapa, Dennis S.
  • Briones, Kristine Joy S.

Abstract

This paper fits Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) models to the daily closing stock market indices of Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, and Taiwan to compute for time-varying weights associated with the volatilities of individual indices. These weights and the returns of the various indices were then used to determine the common component of stock market returns. Our results suggest that a common component of the Asia-Pacific stock market returns exists, which significantly explains the individual country’s stock market returns. We also find that stock markets of Korea and Hong Kong are the two most sensitive to changes in the common component stock returns, while China’s stock market is the least sensitive.

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File URL: http://mpra.ub.uni-muenchen.de/21247/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21247.

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Date of creation: 2006
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Publication status: Published in The Philippine Statistician 1-4.55(2006): pp. 103-117
Handle: RePEc:pra:mprapa:21247

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Related research

Keywords: Common Component; Volatility; GARCH model;

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  1. Robin L. Lumsdaine & Eswar S. Prasad, 2003. "Identifying the Common Component of International Economic Fluctuations: A New Approach," Economic Journal, Royal Economic Society, vol. 113(484), pages 101-127, January.
  2. Ayhan Kose & Marco E. Terrones & Eswar Prasad, 2004. "How do trade and financial integration affect the relationship between growth and volatility?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  3. Lamberte, Mario B. & Yap, Josef T., 2003. "Financial and Monetary Cooperation in ASEAN," Discussion Papers DP 2003-19, Philippine Institute for Development Studies.
  4. Leong, S.C. & Felminham, B., 2001. "The Interdependence of Share Markets in the Developed Economies of East Asia," Papers 2001-10, Tasmania - Department of Economics.
  5. Jose Antonio Tan III & Cayetano Paderanga Jr., 1997. "A Note on Philippine Financial Openness," UP School of Economics Discussion Papers 199704, University of the Philippines School of Economics.
  6. Samuel, Cherian, 1996. "Stock market and investment : the signaling role of the market," Policy Research Working Paper Series 1612, The World Bank.
  7. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  8. Basilio, Leilanie Q. & Intal, Ponciano Jr. S., 1998. "The International Economic Environment and the Philippine Economy," Discussion Papers DP 1998-25, Philippine Institute for Development Studies.
  9. Stijn Claessens & Daniela Klingebiel & Sergio L. Schmukler, 2002. "The Future of Stock Exchanges in Emerging Economies: Evolution and Prosepcts," Center for Financial Institutions Working Papers 02-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  10. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio L., 2006. "Stock market development and internationalization: Do economic fundamentals spur both similarly?," Journal of Empirical Finance, Elsevier, vol. 13(3), pages 316-350, June.
  11. Reza Siregar & Ramkishen Rajan & Tony Cavoli, 2004. "A Survey of Financial Integration in East Asia; How Far? How Much Further to Go?," Centre for International Economic Studies Working Papers 2004-01, University of Adelaide, Centre for International Economic Studies.
  12. Qi Li, 2002. "Market Opening and Stock Market Behavior: Taiwan's Experience," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(1), pages 9-16, April.
  13. Cyn-Young Park, 2004. "New Economy and the Effects of Industrial Structures on International Equity Market Correlations," The IUP Journal of Applied Economics, IUP Publications, vol. 0(4), pages 7-34, July.
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