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Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities

  • Gilles De Truchis


    (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)

  • Benjamin Keddad


    (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)

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 HAL in its series Working Papers with number halshs-00862256.

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Date of creation: Sep 2013
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Handle: RePEc:hal:wpaper:halshs-00862256
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