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An Empirical Analysis of the Thai and Major International Stock Markets

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Author Info
Chancharat,Surachai (University of Wollongong)
Valadkhani, Abbas () (University of Wollongong)
Abstract

This paper investigates the existence of cointegration and causality between the stock market price indices of Thailand and its major trading partners (Australia, Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, the UK and the US), using monthly data spanning December 1987 to December 2005. Both the Engle- Granger two-step procedure (assuming no structural breaks) and the Gregory and Hansen (1996) test (allowing for one structural break) provide no evidence of a long-run relationship between the stock prices of Thailand and these countries. Based on the empirical results obtained from these two residual-based cointegration tests, potential long-run benefits exist from diversifying the investment portfolios internationally to reduce the associated systematic risks across countries. However, in the short run, three unidirectional Granger causalities run from the stock returns of Hong Kong, the Philippines and the UK to those of Thailand, pair-wise. Furthermore, there are two unidirectional causalities running from the stock returns of Thailand to those of Indonesia and the US. We also found empirical evidence of bidirectional Granger causality, suggesting that the stock returns of Thailand and three of its neighbouring countries (Malaysia, Singapore and Taiwan) are interrelated. No previous study examines the possibility that the pair-wise long-run relationship between the stock prices of Thailand and those of both emerging and developed markets may have been subject to a structural break.

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Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp07-13.

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Length: 19 pages
Date of creation: 2007
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Handle: RePEc:uow:depec1:wp07-13

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Keywords: Stock markets Cointegration Structural breaks Thailand

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Find related papers by JEL classification:
J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence

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