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Volatility Co-movement of ASEAN-5 Equity Markets

  • Oh, Swee-Ling
  • Lau, Evan
  • Puah, Chin-Hong
  • Abu Mansor, Shazali

Purpose – Economic cross-linkages and the increased co-movement of asset prices across international markets are important outcomes as the result of globalization. Hereby, the nature of international stock markets and the extent to which the 1997-1998 East Asian turmoil had affected the market relationship of five countries of Association of Southeast Asian Nations (ASEAN-5) remain as probing questions. Design/methodology/approach – We resort to the standard time series econometrics analysis. These include the unit root, cointegration and the Granger causality tests. Hereby, further empirical analyzes is conducted upon two sub-periods of interest: (1) pre-crisis period from 1987:1 to 1997:7 and (2) post-crisis period from 1997:8 to 2007:12. This is to allow for possible transitional motion leading to and departing from the crisis. Findings – Using an array of econometrics analysis upon the stock price volatility series, we found partial market integration for the pre-crisis; whereas in the post-crisis, complete integration prevails. Hence, the financial meltdown in 1997 is said to be a contagion led crisis as markets integrate well off after the crisis than prior to it. Nonetheless, long run portfolio asset diversification benefits across the ASEAN-5 basin are reduced as markets are integrated in both the pre- and post-crisis. Originality/value – The paper is of value by showing to uncover the issue of interdependence of stock market integration focusing on the ASEAN-5 economies. The formation of the ASEAN Investment Area (AIA- 1998) parallel with the establishment of a developed ASEAN Index-Financial Times Stock Exchange (FTSE) regional index is viable to foster deeper regional market convergence.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22244.

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Date of creation: 03 Apr 2010
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Handle: RePEc:pra:mprapa:22244
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  1. Fernandez-Serrano, Jose L. & Sosvilla-Rivero, Simon, 2001. "Modelling evolving long-run relationships: the linkages between stock markets in Asia," Japan and the World Economy, Elsevier, vol. 13(2), pages 145-160, April.
  2. Jang, Hoyoon & Sul, Wonsik, 2002. "The Asian financial crisis and the co-movement of Asian stock markets," Journal of Asian Economics, Elsevier, vol. 13(1), pages 94-104.
  3. Geert Bekaert & Campbell R. Harvey, 1995. "Emerging Equity Market Volatility," NBER Working Papers 5307, National Bureau of Economic Research, Inc.
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  8. Masih, Rumi & Masih, Abul M. M., 2001. "Long and short term dynamic causal transmission amongst international stock markets," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 563-587, August.
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  14. W. N. W. Azman-Saini & M. Azali & M. S. Habibullah & K. G. Matthews, 2002. "Financial integration and the ASEAN-5 equity markets," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2283-2288.
  15. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
  16. Paresh Kumar Narayan & Russell Smyth, 2005. "Cointegration Of Stock Markets Between New Zealand, Australia And The G7 Economies: Searching For Co-Movement Under Structural Change," Australian Economic Papers, Wiley Blackwell, vol. 44(3), pages 231-247, 09.
  17. Koutmos, Gregory & Booth, G Geoffrey, 1995. "Asymmetric volatility transmission in international stock markets," Journal of International Money and Finance, Elsevier, vol. 14(6), pages 747-762, December.
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