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Stock Market Linkages in Emerging Asia-Pacific Markets

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  • P., Srinivasan
  • M., Kalaivani

Abstract

This study examines the stock market integration among major stock markets of emerging Asia-Pacific economies, viz. India, Malaysia, Hong Kong, Singapore, South Korea, Taiwan, Japan, China and Indonesia. Johansen and Juselius (1990) multivariate cointegration test, Granger causality/Block exogeneity Wald test based on VECM approach and Variance Decomposition Analysis was employed to investigate the dynamic linkages between markets. Cointegration test confirmed a well defined long-run equilibrium relationship among the major stock markets, implying that there exists a common force, such as arbitrage activity, which brings these stock markets together in the long run. The results of Granger causality/Block exogeneity Wald test based on VECM and Variance Decomposition Analysis revealed the stock market interdependencies and dynamic interactions among the selected emerging Asia-Pacific economies. This result implies that investors can gain feasible benefits from international portfolio diversification in the short-run. On the whole, the study results suggest that although long-term diversification benefits from exposure to these markets might be limited, short-run benefits might exist due to substantial transitory fluctuations.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45871.

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Date of creation: 05 Apr 2013
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Handle: RePEc:pra:mprapa:45871

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Keywords: Stock Market Integration; Cointegration; Vector Error Correction Model; Variance Decomposition Analysis;

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