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What drive the regional integration of emerging stock markets?

  • Khaled GUESMI

    ()

    (Economix)

This study explores the fundamental driving forces of regional equity market integration. The determinant factors are categorized into three dimensions: market attribute, economic fundamentals and world information. My sample consists of equity markets in 4 notable regional trading blocs: Latin America, Southeastern Asia, Southeastern Europe and Middle East over the period March 31, 1996-March 31, 2008. I measure market integration based on pricing error as proposed by Bhattacharya and Daouk (2002) and Adler and Qi (2003). Using multivariate BEKK-GARCH (1, 1) process and switching regime model, my results show that the time-varying degree of integration of Latin America, Southeastern Asia, Southeastern Europe region, satisfactorily are explained by the regional level of trade openness and market development. For the Middle East, individual-market volatility and inflation play a significant role in the integration process. The analysis of the financial integration also reveals that the degree of integration of equity markets considerably varies over time.

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File URL: http://www.accessecon.com/pubs/EB/2011/Volume31/EB-11-V31-I2-A23.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 2 ()
Pages: A23

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Handle: RePEc:ebl:ecbull:eb-11-00280
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  1. Khaled Guesmi, 2011. "Time varying regional integration in emerging stock market," Economics Bulletin, AccessEcon, vol. 31(2), pages 1082-1094.
  2. De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
  3. Geert Bekaert & Robert J. Hodrick & David A. Marshall, 1994. "The implications of first-order risk aversion for asset market risk premiums," Working Paper Series, Macroeconomic Issues 94-22, Federal Reserve Bank of Chicago.
  4. Geert Bekaert & Robert J. Hodrick & Xiaoyan Zhang, 2009. "International Stock Return Comovements," Journal of Finance, American Finance Association, vol. 64(6), pages 2591-2626, December.
  5. Tse, Y. K., 2000. "A test for constant correlations in a multivariate GARCH model," Journal of Econometrics, Elsevier, vol. 98(1), pages 107-127, September.
  6. Khaled Guesmi & Duc Khuong Nguyen, 2011. "How strong is the global integration of emerging market regions? An empirical assessment," EconomiX Working Papers 2011-9, University of Paris West - Nanterre la Défense, EconomiX.
  7. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
  8. Geert Bekaert & Campbell R. Harvey, 2003. "Market Integration and Contagion," NBER Working Papers 9510, National Bureau of Economic Research, Inc.
  9. Rolf Langhammer, 1995. "Regional integration in East Asia. From market-driven regionalisation to institutionalised regionalism?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 131(1), pages 167-201, March.
  10. Geert Bekaert & Campbell R. Harvey, 1994. "Time-Varying World Market Integration," NBER Working Papers 4843, National Bureau of Economic Research, Inc.
  11. Ewing, Bradley T. & Payne, James E. & Sowell, Clifford, 1999. "NAFTA and North American stock market linkages: an empirical note," The North American Journal of Economics and Finance, Elsevier, vol. 10(2), pages 443-451.
  12. Edwards, Sebastian & Susmel, Raul, 2001. "Volatility dependence and contagion in emerging equity markets," Journal of Development Economics, Elsevier, vol. 66(2), pages 505-532, December.
  13. Utpal Bhattacharya & Hazem Daouk, 2002. "The World Price of Insider Trading," Journal of Finance, American Finance Association, vol. 57(1), pages 75-108, 02.
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