Stock Market Integration and International Portfolio Diversification between U.S. and ASEAN Equity Markets
The paper empirically analyzes stock market integration and the benefit possibilities of international portfolio diversification across the Southeast Asia (ASEAN) and U.S. equity markets. It employs daily sample of 6 ASEAN equity market indices and S&P 500 index as a proxy of U.S. market index from years 2001 to 2010. The paper examines the stock market return interdependence from three different perspectives which are ‘long-term’, ‘short-term’ and ‘dynamic’ perspectives. In order to investigate the long-run interdependencies, the Johansen-Juselius multivariate co-integration test and the bivariate Engle-Granger 2-step method were used. In respect to the short-run interdependencies, the Generalized Impulse Response Function (GIRF) and the Generalized Forecast Error Variance Decomposition (GFEVD) are employed. Finally, to assess the dynamic structure of equity market co-movements, the Dynamic Conditional Correlation (DCC) model is engaged. Results suggest that in the long-run, there are no potential benefits in diversifying investment portfolios across the ASEAN and U.S. market since there are evidences of cointegration among them. However, the potential benefits of international portfolio diversification can be seen throughout the short-run-period. Subsequently, the DCC findings suggest an overall proposition that by the end of 2010, most of the ASEAN markets do not share the U.S. stock price movement.
|Date of creation:||28 Aug 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Asger Lunde & Peter Reinhard Hansen, 2001.
"A Forecast Comparison of Volatility Models: Does Anything Beat a GARCH(1,1)?,"
2001-04, Brown University, Department of Economics.
- Asger Lunde & Peter R. Hansen, 2005. "A forecast comparison of volatility models: does anything beat a GARCH(1,1)?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 873-889.
- George Fane & Ross H.McLeod, 2002.
"Banking Collapse and Restructuring in Indonesia, 1997-2001,"
Cato Journal, Cato Institute, vol. 22(2), pages 277-295, Fall.
- Fane, George & McLeod, Ross, 2001. "Banking Collapse and Restructuring in Indonesia, 1997-2001," Departmental Working Papers 2001-10, The Australian National University, Arndt-Corden Department of Economics.
- Toshiyuki Shimada & Ting Yang, 2011. "Challenges and Developments in the Financial Systems of the Southeast Asian Economies," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2010(2), pages 137-159.
- Click, Reid W. & Plummer, Michael G., 2005. "Stock market integration in ASEAN after the Asian financial crisis," Journal of Asian Economics, Elsevier, vol. 16(1), pages 5-28, February.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Huw Pill & Mahmood Pradhan, 1995. "Financial Indicators and Financial Change in Africa and Asia," IMF Working Papers 95/123, International Monetary Fund.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Kim, Suk Joong & Moshirian, Fariborz & Wu, Eliza, 2005. "Dynamic stock market integration driven by the European Monetary Union: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2475-2502, October.
- James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
- 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.
- M. Shabri Abd. Majid & Ahamed Kameel Mydin Meera & Mohd. Azmi Omar, 2008. "Interdependence of ASEAN-5 Stock Markets from the US and Japan," Global Economic Review, Taylor & Francis Journals, vol. 37(2), pages 201-225.
- Elyasiani, Elyas & Perera, Priyal & Puri, Tribhuvan N., 1998. "Interdependence and dynamic linkages between stock markets of Sri Lanka and its trading partners," Journal of Multinational Financial Management, Elsevier, vol. 8(1), pages 89-101, January.
- Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
- Jayati Ghosh, 2005. "The Economic and Social Effects of Financial Liberalization: A Primer for Developing Countries," Working Papers 4, United Nations, Department of Economics and Social Affairs.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Pesaran, H. Hashem & Shin, Yongcheol, 1998.
"Generalized impulse response analysis in linear multivariate models,"
Elsevier, vol. 58(1), pages 17-29, January.
- Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, vol. 58(3), pages 259-78, July.
- Kim, Jae H. & Shamsuddin, Abul, 2008. "Are Asian stock markets efficient? Evidence from new multiple variance ratio tests," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 518-532, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:41958. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.