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Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities

  • Gilles de Truchis


    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

  • Benjamin Keddad


    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Two integrated financial markets are generally subjected to common shocks revealing that commonalities in fundamentals drive the underlying return processes. In such a case, volatilities should share a long-run component although their transitory components might temporary diverge. Accordingly, we investigate financial integration in East Asian by analyzing the co-persistent nature of their integrated volatilities. Using recent fractional cointegration techniques, we find that volatilities of several markets converge in long-run to a common stochastic equilibrium. Our results reveal that a global integration process drives the most developed markets of the region, while no evidence of co-persistence appears between emerging markets.

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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1346.

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Length: 19 pages
Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:aim:wpaimx:1346
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  16. John Beirne & Guglielmo Maria Caporale & Marianne Schulze-Ghattas & Nicola Spagnolo, 2009. "Global and Regional Spillovers in Emerging Stock Markets: A Multivariate GARCH-in-mean Analysis," CESifo Working Paper Series 2794, CESifo Group Munich.
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