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Efficiency, Cointegration and Contagion in Equity Markets: Evidence from China, Japan and South Korea


  • A.S.M. Sohel Azad


This paper empirically examines whether three East Asian stock markets, namely, those of China, Japan and South Korea, are individually and/or jointly efficient, and whether contagion exists between the cointegrated markets. While individual market efficiency is examined through testing for the random walk hypothesis, joint market efficiency is examined through testing for cointegration and contagion. The present study finds that the hypothesis of individual market efficiency is strongly rejected for the Chinese stock market, but not for the Japanese and the South Korean stock markets. However, when testing for cointegration, market efficiency is strongly rejected for all these markets. We take a simple case of contagion and find that although there is a long-term relationship among the three markets, the contagion hypothesis cannot be rejected only between Japanese and South Korean stock markets, indicating short-run portfolio diversification benefits from these two markets. Copyright 2009 The Author. Journal compilation 2009 East Asian Economic Association and Blackwell Publishing Ltd.

Suggested Citation

  • A.S.M. Sohel Azad, 2009. "Efficiency, Cointegration and Contagion in Equity Markets: Evidence from China, Japan and South Korea," Asian Economic Journal, East Asian Economic Association, vol. 23(1), pages 93-118, March.
  • Handle: RePEc:bla:asiaec:v:23:y:2009:i:1:p:93-118

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    References listed on IDEAS

    1. Hill, T P, 1977. "On Goods and Services," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 23(4), pages 315-338, December.
    2. Mulder, N., 1994. "Transport and Communication in Mexico and the United States: Value Added , Purchasing Power Parities and Productivity," Papers 579, Groningen State, Institute of Economic Research-.
    3. Soi Lam & Trinh Toan, 2006. "Land Transport Policy and Public Transport in Singapore," Transportation, Springer, vol. 33(2), pages 171-188, March.
    4. Kim-Song Tan & Sock-Yong Phang, 2004. "From Efficiency-driven to Innovation-driven Economic Growth: Perspectives from Singapore," Working Papers 15-2004, Singapore Management University, School of Economics.
    5. Lu, Ding & Yu, Qiao, 1999. "Hong Kong's exchange rate regime:: Lessons from Singapore," China Economic Review, Elsevier, vol. 10(2), pages 122-140.
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    Cited by:

    1. repec:ipg:wpaper:2013-006 is not listed on IDEAS
    2. Guesmi, Khaled & Kablan, Sandrine, 2015. "Financial integration and Japanese stock market," MPRA Paper 70206, University Library of Munich, Germany.
    3. repec:ipg:wpaper:6 is not listed on IDEAS
    4. Lean, Hooi Hooi & Teng, Kee Tuan, 2013. "Integration of world leaders and emerging powers into the Malaysian stock market: A DCC-MGARCH approach," Economic Modelling, Elsevier, vol. 32(C), pages 333-342.
    5. Gupta, Rakesh & Guidi, Francesco, 2012. "Cointegration relationship and time varying co-movements among Indian and Asian developed stock markets," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 10-22.
    6. Azad, A.S.M. Sohel & Azmat, Saad & Fang, Victor & Edirisuriya, Piyadasa, 2014. "Unchecked manipulations, price–volume relationship and market efficiency: Evidence from emerging markets," Research in International Business and Finance, Elsevier, vol. 30(C), pages 51-71.
    7. Khaled Guesmi & Frédéric Teulon, 2013. "Regional Equity Risk Premium Convergence: The case of Japan," Working Papers 2013-6, Department of Research, Ipag Business School.
    8. Sandrine Kablan & Khaled Guesmi, 2016. "Financial Integration and Japanese Stock market Performance," Economics Bulletin, AccessEcon, vol. 36(2), pages 1064-1070.
    9. repec:ipg:wpaper:201406 is not listed on IDEAS
    10. Naseri, Marjan & Masih, Mansur, 2014. "Integration and Comovement of Developed and Emerging Islamic Stock Markets: A Case Study of Malaysia," MPRA Paper 58799, University Library of Munich, Germany.

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