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Testing for Non-Linearity in ASEAN Financial Markets

  • Kian-Ping Lim

    (Universiti Malaysia Sabah)

  • Venus Khim-Sen Liew

    (Universiti Putra Malaysia)

With abounding evidence of non-linearity in financial markets of developed countries, this study attempts to narrow the gap in the literature of ASEAN countries, with a focus on the foreign exchange and stock markets. The outcomes of our econometric investigation using the Hinich bispectrum test provide strong support for the presence of non- linearity in all the ASEAN-5 exchange rates and stock returns series. Further application of the Lukkonen-Saikkonen-Teräsvirta (LST) test reinforces our conclusion that the financial time series data of ASEAN-5 exhibit non-linear dependencies. These findings, while highlighting the fact that researchers cannot take the linear assumption as granted, also point to the need to test for non-linearity as a preliminary diagnostic tool to determine the nature of the data generating process before any further empirical analysis. This study has strong implication on the empirical work of ASEAN-5 financial markets. Specifically, the results suggest the use of empirical methods that is more robust if the data generating process is non-linear.

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Paper provided by EconWPA in its series Finance with number 0308002.

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Date of creation: 03 Aug 2003
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Handle: RePEc:wpa:wuwpfi:0308002
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