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Integration or Segmentation of Malaysian Equity Market: An Analysis of Pre- and Post- Capital Controls

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  • Mansor H. Ibrahim

    (International Islamic University Malaysia)

Abstract

The paper implements time series techniques of cointegration and vector autoregression (VAR) to assess the integration or segmentation of Malaysian equity market prior to the Asian crisis and after the imposition of capital controls. We consider both regional and international financial forces represented by respectively the ASEAN markets and the advanced markets of US and Japan. We form three systems of share prices – (i) ASEAN markets; (ii) US, Japan and Malaysia; and (iii) US, Japan and ASEAN. Our findings suggest no long run relation among share prices in all systems before the Asian crisis and after the imposition of capital controls. However, there are substantial short run dynamic interactions among regional markets of ASEAN. We note significant responses of the Malaysian market to ASEAN shocks regardless of the sample periods. By contrast, its responses to innovations in US and Japan, while significant before the Asian crisis, turn insignificant after the imposition of capital controls. Comparatively, the US market is more influential in accounting for fluctuations in the ASEAN markets. From the results, while not attributing solely to capital control measures, we contend that capital controls play some role in insulating the Malaysian market from international disturbances.

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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0411010.

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Length: 34 pages
Date of creation: 05 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0411010

Note: Type of Document - doc; pages: 34
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Web page: http://128.118.178.162

Related research

Keywords: Integration and Segmentation; Cointegration; Vector Autoregression; Generalized Impulse Responses.;

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References

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  1. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  3. Christopher A. Sims, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," NBER Working Papers 0430, National Bureau of Economic Research, Inc.
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  5. Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," Working Paper Series rwp01-008, Harvard University, John F. Kennedy School of Government.
  6. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
  7. Jorion, Philippe & Schwartz, Eduardo, 1986. " Integration vs. Segmentation in the Canadian Stock Market," Journal of Finance, American Finance Association, vol. 41(3), pages 603-14, July.
  8. Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc.
  9. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  10. Johansen, S., 1991. "Testing Weak Exogeneity and the Order of Cointegration in UK Money Demand Data," Papers 78, Helsinki - Department of Economics.
  11. Hall, S G, 1989. "Maximum Likelihood Estimation of Cointegration Vectors: An Example of the Johansen Procedure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(2), pages 213-18, March.
  12. Hatemi-J, Abdulnasser & Roca, Eduardo D., 2004. "Do birds of the same feather flock together?: The case of the Chinese states equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(3), pages 281-294, July.
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Cited by:
  1. Sayyed Mahdi Ziaei, 2013. "Evaluating the Effects of Monetary Policy Shocks on GCC Countries," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 43(2), pages 195-215, September.

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