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Stock Market Integration Between Malaysia and its Major Trading Partners (1994-2002)

Author

Listed:
  • Mohd Zaini Abd KARIM
  • Chan Sok GEE

Abstract

The issue of interdependence between international asset pricing had become an important topic in modern finance literature. It had received tremendous attention due to the increasing role of globalisation of market place. This is because globalisation had reduced the barriers to capital transactions among various countries and increased the linkages between stock markets movement in various countries. It is argued that trade linkages is one of the factors that increase the linkages of stock market movement between countries. This study employs cointegration and causality techniques in investigating the relationship between Malaysian and its major trading partners stock market before and after the 1997 Asian financial crisis. The results of the bivariate cointegration test on countries’ stock indices indicate the existence of a long run relationship between Malaysian and the Philippines stock markets as well as between Malaysian and the United States stock markets for period before the financial crisis. Before the 1997 financial crisis, the daily price movement of Malaysian stock market is found to lead the daily price movement in Indonesia, China in the short-run, and the Philippines in the long run. In addition, there is a bi-directional relationship between Malaysia and the stock markets in Hong Kong and Thailand. The short-run causal relationship between the Malaysian stock market and the stock markets of its major trading partners started to weaken after the financial crisis. Such finding is highly attributable to the fact that Malaysia’s imposition of capital control in September 1998 in their attempt to curb speculative attacks had been relatively successful in shutting out foreign influences.

Suggested Citation

  • Mohd Zaini Abd KARIM & Chan Sok GEE, 2006. "Stock Market Integration Between Malaysia and its Major Trading Partners (1994-2002)," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
  • Handle: RePEc:eaa:aeinde:v:6:y:2006:i:3_17
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    Citations

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    Cited by:

    1. Bakri Abdul Karim & M. Shabri Abd. Majid, 2010. "Does trade matter for stock market integration?," Studies in Economics and Finance, Emerald Group Publishing, vol. 27(1), pages 47-66, March.
    2. Anil Sharma & Neha Seth, 2012. "Literature review of stock market integration: a global perspective," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 4(1), pages 84-122, April.

    More about this item

    Keywords

    Stock market; Cointegration; Malaysia; financial crisis;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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