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Does the financial cooperation agreement increase the interdependency among ASEAN+3 equity markets? A Markov switching approach

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  • Md. Saifur Rahman

    (RMIT University)

  • Farihana Shahari

    (International Islamic University)

Abstract

This paper aims to investigate the degree of interdependence among ASEAN+3 equity markets by employing Markov Switching approach and Johansen Cointegration test. The period is segmented into two periods; pre-agreement period and post-agreement period. The study shows several findings; 1) the regime changes and transition probabilities in ASEAN+3 equity markets during pre-agreement period are slow, 2) the equity markets of developed economies are more interdependent compared to emerging economies, 3) the degree of market inter-dependency improves during post-agreement period but is still weak, 4) the result of Markov Switching is re-confirmed by that of Johansen which shows that the ASEAN+3 equity markets strengthen interdependent relationship slightly during the post-agreement period. This study offers policy implications to strengthen the interdependent relationship so that ASEAN+3 economies can enhance the financial cooperation, develop the regional financial markets, and stabilizes the financial system as a remedial action to avoid a possible financial crisis.

Suggested Citation

  • Md. Saifur Rahman & Farihana Shahari, 2021. "Does the financial cooperation agreement increase the interdependency among ASEAN+3 equity markets? A Markov switching approach," International Economics and Economic Policy, Springer, vol. 18(4), pages 869-899, October.
    • Handle: RePEc:kap:iecepo:v:18:y:2021:i:4:d:10.1007_s10368-021-00499-1
    DOI: 10.1007/s10368-021-00499-1
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    More about this item

    Keywords

    Interdependence; ASEAN+3; Financial cooperation agreement; Markov switching approach;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets

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