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AN ANALYSIS OF STOCK MARKET INTEGRATION IN THE ASIAN DEVELOPED AND EMERGING MARKETS
Corresponding Author(s) : Sadiq Rehman
Humanities & Social Sciences Reviews,
Vol. 9 No. 3 (2021): May
Abstract
Purpose of the study: This study investigates Short-run, Long-run, and Casual relationships in the Asian Developed and Emerging stock market indices for the period of 19 years weekly data of stock market indices of Asian Developed and Emerging Markets which are Japan (Nikkei 225), South Korea (KOSPI), Pakistan (KSE 100), China (SSE Composite), Sri Lanka (ASPI), India (BSE 200) and Malaysia (KLSE composite) from January 2001 to December 2019.
Methodology: To analyze long-run and short-run relationships among the Asian developed and emerging stock markets, this study practices Descriptive Statistics, Correlation Matrix, Unit Root Test, Johansen Co-Integration Test, Vector Error Correction Model, Granger Causality test, Variance Decomposition and Impulse Response Function (IRF).
Main findings: By employing the ADF and P.P. tests, the results specify that the entire variables' data are non-stationary and stationary in exact order, which is 1st difference. The Johnson Co-integration test found one cointegration relationship, where the results are consistent with Granger causality, Variance Decomposition, and Impulse Response Function (IRF).
Application of the study: As the current research has focused on finding out the comovements in the Asian developed and emerging markets. So, the applications are that the survey found short-run and long-run relationships in these countries' stock markets.
The study's originality: The current study has selected seven Asian developed and emerging stock markets and weekly updated time series data to investigate short-term and long-term linkages. So, this study found long-run comovements in these stock indices, which contributes to the literature. In addition, these stock markets have limited diversification benefits for international investors, while short-term diversification benefits may exist.
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- Arshanapalli, B., & Doukas, J. (1993). International stock market linkages: Evidence from the pre-and post-October 1987 period. Journal of Banking & Finance, 17(1), 193-208. ttps://doi.org/10.1016/0378-4266(93)90088-U DOI: https://doi.org/10.1016/0378-4266(93)90088-U
- Bhunia, A., & Das, A. (2017). Financial Market Integration: Empirical Evidence from India and Select South Asian Countries. Afro Asian Journal of Social Sciences, 3(3.1).
- Canarella, G., Miller, S. M., & Pollard, S. K. (2019). Dynamic stock market interactions between the Canadian, Mexican, and the United States markets: The NAFTA experience. Nova Science Publishers, Inc., 4th Quarter.
- Chen, G. M., Firth, M., & Rui, O. M. (2012). Stock market linkages: evidence from Latin America. Journal of Banking & Finance, 26(6), 1113-1141. https://doi.org/10.1016/S0378-4266(01)00160-1 DOI: https://doi.org/10.1016/S0378-4266(01)00160-1
- Chan, K. C., Gup, B. E., & Pan, M. S. (1997). International stock market efficiency and integration: A study of eighteen nations. Journal of Business Finance & Accounting, 24(6), 803-813. https://doi.org/10.1111/1468-5957.00134 DOI: https://doi.org/10.1111/1468-5957.00134
- Click, R.W. and Plummer, M.G. (2015). Stock Market Integration in ASEAN after the Asian
- Financial Crisis. Journal of Asian Economics, 16(1), 5-28
- Chen, H., Lobo, B. J., & Wong, W. K. (2016). Links between the Indian, U.S. and Chinese stock markets. National University of Singapore, Department of Economics, Working Paper, (0602).
- Edison, H. J., Levine, R., Ricci, L., & Sløk, T. (2012). International financial integration and
- economic growth. Journal of international money and finance, 21(6), 749-776.
- Errunza, V., & Losq, E. (1985). International asset pricing under mild segmentation: Theory and test. The Journal of Finance, 40(1), 105-124. https://doi.org/10.1111/j.1540-6261.1985.tb04939.x DOI: https://doi.org/10.1111/j.1540-6261.1985.tb04939.x
- Forbes, K. J., & Rigobon, R. (2012). No contagion, only interdependence: measuring stock market comovements. The journal of finance, 57(5), 2223-2261. https://doi.org/10.1111/0022-1082.00494 DOI: https://doi.org/10.1111/0022-1082.00494
- Gilmore, C. G., & McManus, G. M. (2012). International portfolio diversification: U.S. and Central European Equity Markets. Emerging Markets Review, 3(1), 69-83. https://doi.org/10.1016/S1566-0141(01)00031-0 DOI: https://doi.org/10.1016/S1566-0141(01)00031-0
- Garrett, I., Hyde, S., & Varas, J. (2014). The Interaction between Latin American Stock Markets and the U.S. University of Manchester, mimeo.
- Gupta, N., & Agarwal, V. (2011). Comparative study of distribution of Indian stock market with other Asian markets. International Journal of Enterprise Computing and Business Systems, 1(2), 1-20.
- Gurcharan S Pritam S (2017) Chinese and Indian Stock Market Linkages with
- Developed Stock Markets, Asian Journal of Finance & Accounting, 2(2), E2.
- Harvie, C., & Pahlavani, M. (2017). Sources of Economic Growth in South Korea. Korea and the World Economy, 8(2), 205-235.
- Iqbal, A., Khalid, N., & Rafiq, S. (2017). Dynamic Interrelationship Among the Stock markets of India, Pakistan and United States. International Journal of Human and Social Sciences, 6(1), 31-37.
- Jawadi, F., & Arouri, M. E. H. (2018). Are American and French stock markets integrated? The International Journal of Business and Finance Research, 2(2), 107-116.
- Jebran, K. (2014). Dynamic linkages between Asian countries stock markets: Evidence from Karachi Stock Exchange. Research Journal of Management Sciences, 3(5), 6-13.
- Khan, S. N., & Aslam, M. S. (2014). Co-integration of Karachi Stock Exchange with major South Asian Stock Exchanges. International Journal of Accounting and Financial Reporting, 4(1), 106-117. https://doi.org/10.5296/ijafr.v4i1.5454 DOI: https://doi.org/10.5296/ijafr.v4i1.5454
- Khan, K. M., Khan, A. M., Ullah M., Usman, A., Farhat, S., (2020). Closing price determination; extent of manipulation and deterrent strategy formulation: a case of Pakistan Stock Exchange. Journal of Critical Reviews, 7(14), 2689-2705.
- Lessard, D. R. (1973). International portfolio diversification: a multivariate analysis for a group of Latin American countries. The Journal of Finance, 28(3), 619-633. https://doi.org/10.1111/j.1540-6261.1973.tb01384.x DOI: https://doi.org/10.1111/j.1540-6261.1973.tb01384.x
- Masih, A. M., & Masih, R. (1999). Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets. Pacific-Basin Finance Journal, 7(3), 251-282. https://doi.org/10.1016/S0927-538X(99)00013-X DOI: https://doi.org/10.1016/S0927-538X(99)00013-X
- Meric, I., & Meric, G. (1997). Comovements of European equity markets before and after the 1987 crash. Multinational Finance Journal, 1(2), 137-152. https://doi.org/10.17578/1-2-4 DOI: https://doi.org/10.17578/1-2-4
- Moon, W. S. (2017). Currency crisis and stock market integration: A comparison of East Asian and European Experiences. Journal of International and Area Studies, 1, 41-56,
- Palamalai, S., Kalaivani, M., & Devakumar, C. (2013). Stock Market Linkages in Emerging Asia-Pacific Markets. SAGE Open, 3(4). https://doi.org/10.1177/2158244013514060 DOI: https://doi.org/10.1177/2158244013514060
- Rodriguez, F., & Rodrik, D. (2016). Trade policy and economic growth: a skeptic's guide to the cross-national evidence. In NBER Macroeconomics Annual 2000, 15, 261-338. MIT Press. https://doi.org/10.1086/654419 DOI: https://doi.org/10.1086/654419
- Searat, Babar and Kashif (2011). Comovement Between Emerging and Developed Stock Markets: An Investigation Through Cointegration Analysis, World Applied Sciences Journal, 12(4), 395-403.
- Shaikh, S., Channar, P., Shaikh, M., &, Ullah, M., (2021). Financial constraints and listed sugar mills on Pakistan Stock Exchange. International Journal of Management, 12(3), 70-76. DOI: https://doi.org/10.29270/JBS.12.2(2018).0118
- Sulaiman D. Mohammad (2011). The Dynamic Linkages of Pakistani and Global Stock1arkets: Evidence from Karachi Stock Exchange, 5(2), 233-242.
- Tabak, B. M., & Lima, E. J. A. (2013). Causality and cointegration in stock markets: the case of Latin America. Revista Brasileira de Economia de Empresas, 3(2), 1-28.
- Ullah, M., Shaikh, M., Channar, P., & Shaikh, S., (2021). Financial forecasting: an individual perspective. International Journal of Management, 12(3), 60-69.
- Ullah, M., Malik., A.M., Zeb, A., Rehman, A. (2019). Mediating Role of Capital Structure between Corporate Governance and Risk. Journal of Managerial Sciences, 13(3), 47-56.
- Wong, W. K., Agarwal, A., & Du, J. (2014). Financial integration for India stock market: A fractional cointegration approach. Finance India, 18(4), 1581.
References
Arshanapalli, B., & Doukas, J. (1993). International stock market linkages: Evidence from the pre-and post-October 1987 period. Journal of Banking & Finance, 17(1), 193-208. ttps://doi.org/10.1016/0378-4266(93)90088-U DOI: https://doi.org/10.1016/0378-4266(93)90088-U
Bhunia, A., & Das, A. (2017). Financial Market Integration: Empirical Evidence from India and Select South Asian Countries. Afro Asian Journal of Social Sciences, 3(3.1).
Canarella, G., Miller, S. M., & Pollard, S. K. (2019). Dynamic stock market interactions between the Canadian, Mexican, and the United States markets: The NAFTA experience. Nova Science Publishers, Inc., 4th Quarter.
Chen, G. M., Firth, M., & Rui, O. M. (2012). Stock market linkages: evidence from Latin America. Journal of Banking & Finance, 26(6), 1113-1141. https://doi.org/10.1016/S0378-4266(01)00160-1 DOI: https://doi.org/10.1016/S0378-4266(01)00160-1
Chan, K. C., Gup, B. E., & Pan, M. S. (1997). International stock market efficiency and integration: A study of eighteen nations. Journal of Business Finance & Accounting, 24(6), 803-813. https://doi.org/10.1111/1468-5957.00134 DOI: https://doi.org/10.1111/1468-5957.00134
Click, R.W. and Plummer, M.G. (2015). Stock Market Integration in ASEAN after the Asian
Financial Crisis. Journal of Asian Economics, 16(1), 5-28
Chen, H., Lobo, B. J., & Wong, W. K. (2016). Links between the Indian, U.S. and Chinese stock markets. National University of Singapore, Department of Economics, Working Paper, (0602).
Edison, H. J., Levine, R., Ricci, L., & Sløk, T. (2012). International financial integration and
economic growth. Journal of international money and finance, 21(6), 749-776.
Errunza, V., & Losq, E. (1985). International asset pricing under mild segmentation: Theory and test. The Journal of Finance, 40(1), 105-124. https://doi.org/10.1111/j.1540-6261.1985.tb04939.x DOI: https://doi.org/10.1111/j.1540-6261.1985.tb04939.x
Forbes, K. J., & Rigobon, R. (2012). No contagion, only interdependence: measuring stock market comovements. The journal of finance, 57(5), 2223-2261. https://doi.org/10.1111/0022-1082.00494 DOI: https://doi.org/10.1111/0022-1082.00494
Gilmore, C. G., & McManus, G. M. (2012). International portfolio diversification: U.S. and Central European Equity Markets. Emerging Markets Review, 3(1), 69-83. https://doi.org/10.1016/S1566-0141(01)00031-0 DOI: https://doi.org/10.1016/S1566-0141(01)00031-0
Garrett, I., Hyde, S., & Varas, J. (2014). The Interaction between Latin American Stock Markets and the U.S. University of Manchester, mimeo.
Gupta, N., & Agarwal, V. (2011). Comparative study of distribution of Indian stock market with other Asian markets. International Journal of Enterprise Computing and Business Systems, 1(2), 1-20.
Gurcharan S Pritam S (2017) Chinese and Indian Stock Market Linkages with
Developed Stock Markets, Asian Journal of Finance & Accounting, 2(2), E2.
Harvie, C., & Pahlavani, M. (2017). Sources of Economic Growth in South Korea. Korea and the World Economy, 8(2), 205-235.
Iqbal, A., Khalid, N., & Rafiq, S. (2017). Dynamic Interrelationship Among the Stock markets of India, Pakistan and United States. International Journal of Human and Social Sciences, 6(1), 31-37.
Jawadi, F., & Arouri, M. E. H. (2018). Are American and French stock markets integrated? The International Journal of Business and Finance Research, 2(2), 107-116.
Jebran, K. (2014). Dynamic linkages between Asian countries stock markets: Evidence from Karachi Stock Exchange. Research Journal of Management Sciences, 3(5), 6-13.
Khan, S. N., & Aslam, M. S. (2014). Co-integration of Karachi Stock Exchange with major South Asian Stock Exchanges. International Journal of Accounting and Financial Reporting, 4(1), 106-117. https://doi.org/10.5296/ijafr.v4i1.5454 DOI: https://doi.org/10.5296/ijafr.v4i1.5454
Khan, K. M., Khan, A. M., Ullah M., Usman, A., Farhat, S., (2020). Closing price determination; extent of manipulation and deterrent strategy formulation: a case of Pakistan Stock Exchange. Journal of Critical Reviews, 7(14), 2689-2705.
Lessard, D. R. (1973). International portfolio diversification: a multivariate analysis for a group of Latin American countries. The Journal of Finance, 28(3), 619-633. https://doi.org/10.1111/j.1540-6261.1973.tb01384.x DOI: https://doi.org/10.1111/j.1540-6261.1973.tb01384.x
Masih, A. M., & Masih, R. (1999). Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets. Pacific-Basin Finance Journal, 7(3), 251-282. https://doi.org/10.1016/S0927-538X(99)00013-X DOI: https://doi.org/10.1016/S0927-538X(99)00013-X
Meric, I., & Meric, G. (1997). Comovements of European equity markets before and after the 1987 crash. Multinational Finance Journal, 1(2), 137-152. https://doi.org/10.17578/1-2-4 DOI: https://doi.org/10.17578/1-2-4
Moon, W. S. (2017). Currency crisis and stock market integration: A comparison of East Asian and European Experiences. Journal of International and Area Studies, 1, 41-56,
Palamalai, S., Kalaivani, M., & Devakumar, C. (2013). Stock Market Linkages in Emerging Asia-Pacific Markets. SAGE Open, 3(4). https://doi.org/10.1177/2158244013514060 DOI: https://doi.org/10.1177/2158244013514060
Rodriguez, F., & Rodrik, D. (2016). Trade policy and economic growth: a skeptic's guide to the cross-national evidence. In NBER Macroeconomics Annual 2000, 15, 261-338. MIT Press. https://doi.org/10.1086/654419 DOI: https://doi.org/10.1086/654419
Searat, Babar and Kashif (2011). Comovement Between Emerging and Developed Stock Markets: An Investigation Through Cointegration Analysis, World Applied Sciences Journal, 12(4), 395-403.
Shaikh, S., Channar, P., Shaikh, M., &, Ullah, M., (2021). Financial constraints and listed sugar mills on Pakistan Stock Exchange. International Journal of Management, 12(3), 70-76. DOI: https://doi.org/10.29270/JBS.12.2(2018).0118
Sulaiman D. Mohammad (2011). The Dynamic Linkages of Pakistani and Global Stock1arkets: Evidence from Karachi Stock Exchange, 5(2), 233-242.
Tabak, B. M., & Lima, E. J. A. (2013). Causality and cointegration in stock markets: the case of Latin America. Revista Brasileira de Economia de Empresas, 3(2), 1-28.
Ullah, M., Shaikh, M., Channar, P., & Shaikh, S., (2021). Financial forecasting: an individual perspective. International Journal of Management, 12(3), 60-69.
Ullah, M., Malik., A.M., Zeb, A., Rehman, A. (2019). Mediating Role of Capital Structure between Corporate Governance and Risk. Journal of Managerial Sciences, 13(3), 47-56.
Wong, W. K., Agarwal, A., & Du, J. (2014). Financial integration for India stock market: A fractional cointegration approach. Finance India, 18(4), 1581.