International Diversification Benefits in ASEAN Stock Markets: a Revisit
With plentiful of evidence supporting the presence of non-linearity in stock returns series, coupled with theoretical and empirical works suggesting a potential loss in standard Johansen cointegration method if the underlying data generating process is non-linear in nature, this study re-examines the issue of stock markets integration in the ASEAN region using a more robust test. Specifically, the Bierens’s (1997) non- parametric cointegration test is selected in views of its potential superiority over standard linear Johansen and Juselius (1990) method at detecting cointegration when the data generating process is non-linear. The results from the Bierens’s test indicate that there is a common force which brings all the five ASEAN stock markets together in the long run. In this case, the shocks from any of these five markets may spillover to the other markets in the same region. The recent Asian financial crisis bears a good testimony to this ‘contagion effect’. More importantly, the Bierens’s (1997) non-parametric cointegration test provides robust evidence suggesting that there would be no long run gain from international portfolio diversification. Specifically, investors with long run horizons may not benefit from an investment made across the countries in this ASEAN region. One possible explanation for this intra-ASEAN stock markets integration is their strong economic ties, especially intra-ASEAN trade and investment that has indirectly linked their stock indices.
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.:
- William A. Barnett & Apostolos Serletis, 1998.
"Martingales, Nonlinearity, and Chaos,"
- William Barnett & Apostolos Serletis, 2012. "Martingales, Nonlinearity, And Chaos," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201225, University of Kansas, Department of Economics, revised Sep 2012.
- Geert Bekaert & Campbell R. Harvey, 1997.
"Foreign Speculators and Emerging Equity Markets,"
William Davidson Institute Working Papers Series
79, William Davidson Institute at the University of Michigan.
- Abul Masih & Rumi Masih, 1997. "A comparative analysis of the propagation of stock market fluctuations in alternative models of dynamic causal linkages," Applied Financial Economics, Taylor & Francis Journals, vol. 7(1), pages 59-74.
- 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.
- Jerry Coakley & Ana-Maria Fuertes, 2001. "Nonparametric cointegration analysis of real exchange rates," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 1-8.
- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992.
"Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?,"
Journal of Econometrics,
Elsevier, vol. 54(1-3), pages 159-178.
- Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
- Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
- Masih, A. Mansur M. & Masih, Rumi, 2002. "Propagative causal price transmission among international stock markets: evidence from the pre- and postglobalization period," Global Finance Journal, Elsevier, vol. 13(1), pages 63-91.
- Stiglitz, Joseph E., 2000. "Capital Market Liberalization, Economic Growth, and Instability," World Development, Elsevier, vol. 28(6), pages 1075-1086, June.
- Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2000.
"Emerging Equity Markets and Economic Development,"
NBER Working Papers
7763, National Bureau of Economic Research, Inc.
- Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
- Abhyankar, A & Copeland, L S & Wong, W, 1995. "Nonlinear Dynamics in Real-Time Equity Market Indices: Evidence from the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 864-80, July.
- Abhyankar, A & Copeland, L S & Wong, W, 1997. "Uncovering Nonlinear Structure in Real-Time Stock-Market Indexes: The S&P 500, the DAX, the Nikkei 225, and the FTSE-100," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 1-14, January.
- Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-75, September.
- Ma, Yue & Kanas, Angelos, 2000. "Testing for a nonlinear relationship among fundamentals and exchange rates in the ERM," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 135-152, February.
- Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February.
- Pesaran, M Hashem & Potter, Simon M, 1992. "Nonlinear Dynamics and Econometrics: An Introduction," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S1-7, Suppl. De.
- John Barkoulas & Nickolaos Travlos, 1998. "Chaos in an emerging capital market? The case of the Athens Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 231-243.
- Bierens, H.J., 1995.
"Nonparametric cointegration analysis,"
1995-123, Tilburg University, Center for Economic Research.
- Levine, Ross & Zervos, Sara, 1998.
"Capital Control Liberalization and Stock Market Development,"
Elsevier, vol. 26(7), pages 1169-1183, July.
- Levine, Ross & Zervos, Sara, 1996. "Capital control liberalization and stock market development," Policy Research Working Paper Series 1622, The World Bank.
- Ross Levine & Sara Zervos, . "Capital control liberalisation and stock market development," CERF Discussion Paper Series 96-03, Economics and Finance Section, School of Social Sciences, Brunel University.
- Hsieh, David A, 1991. " Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, vol. 46(5), pages 1839-77, December.
- Phillips, P.C.B., 1986.
"Testing for a Unit Root in Time Series Regression,"
Cahiers de recherche
8633, Universite de Montreal, Departement de sciences economiques.
- Kari Heimonen, 2002. "Stock market integration: evidence on price integration and return convergence," Applied Financial Economics, Taylor & Francis Journals, vol. 12(6), pages 415-429.
- 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.
- Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," The Journal of Business, University of Chicago Press, vol. 62(3), pages 311-37, July.
- Angelos Kanas, .
"Linkages between the US and European Equity Markets: Further Evidence from cointegration Tests,"
9804, University of Crete, Department of Economics.
- Angelos Kanas, 1998. "Linkages between the US and European equity markets: further evidence from cointegration tests," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 607-614.
- Nathan S. Balke & Thomas B. Fomby, 1992.
9209, Federal Reserve Bank of Dallas.
- Eduardo Roca & E. Antony Selvanathan, 2001. "Australia and the three little dragons: are their equity markets interdependent?," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 203-207.
- Taylor, Mark P & Tonks, Ian, 1989. "The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Control," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 332-36, May.
- Phylaktis, Kate & Ravazzolo, Fabiola, 2002. "Measuring financial and economic integration with equity prices in emerging markets," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 879-903, November.
- Kim, E Han & Singal, Vijay, 2000. "Stock Market Openings: Experience of Emerging Economies," The Journal of Business, University of Chicago Press, vol. 73(1), pages 25-66, January.
- Ratanapakorn, Orawan & Sharma, Subhash C., 2002. "Interrelationships among regional stock indices," Review of Financial Economics, Elsevier, vol. 11(2), pages 91-108.
- Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
- Kawakatsu, Hiroyuki & Morey, Matthew R., 1999. "Financial liberalization and stock market efficiency: an empirical examination of nine emerging market countries," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 353-371, November.
- Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0308003. 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: (EconWPA)
If references are entirely missing, you can add them using this form.