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Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities

  • Gilles De Truchis

    ()

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

  • Benjamin Keddad

    ()

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

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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Date of creation: Sep 2013
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Handle: RePEc:hal:wpaper:halshs-00862256
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  1. Celso Brunetti & Christopher L. Gilbert, 1999. "Bivariate FIGARCH and Fractional Cointegration," Working Papers 408, Queen Mary University of London, School of Economics and Finance.
  2. David W. Berger & Alain P. Chaboud & Erik Hjalmarsson & Edward Howorka, 2006. "What drives volatility persistence in the foreign exchange market?," International Finance Discussion Papers 862, Board of Governors of the Federal Reserve System (U.S.).
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  9. Gilles De Truchis & Benjamin Keddad, 2012. "South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates," Working Papers halshs-00793503, HAL.
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