Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?

Abstract

Stock markets play a key role in corporate financing in Asia. However, despite their increasing importance in terms of size and cross-border investment activity, the region's markets are reputed to be more "idiosyncratic" and less reliant on economic and corporate fundamentals in their pricing. Using a model that draws on international asset pricing and economic theory, as well as accounting literature, we find evidence of greater idiosyncratic influences in the pricing of Asia's stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals. We also show proof of a significant relationship between the strength of implementation of securities regulations and the "noise" in stock pricing, which suggests that improvements in the regulation of securities markets in Asia could enhance the role of stock markets as stable and reliable sources of financing into the future.

Asian stock market integration after the global financial crisis: an ARDL bound testing approach

“…Park (2013) demonstrates how the volatility in equity and bond-market returns at regional and global levels transmits to the financial markets of emerging Asia. The regulatory changes in the financial markets across the region are selfevident in the development of the capital market as the prime source of industrial finance for Asian firms (Lipinsky and Ong, 2014). However, many studies, including Ibrahim (2005), Karim and Majid (2010) and Singhania and Prakash (2014), produced evidence against the hypothesis of stock market integration in Asia.…”

Revisit Financial Integration in Asia: New Time-Series Evidence from Stock Markets

“…Park (2013) measured the degree to which volatility in equity and bond-market returns at regional and global levels spills over into emerging Asia. The improvements in regulating financial markets in Asia could make better the role of stock markets as reliable sources of financing into the future (Lipinsky & Ong, 2014). However, the empirical studies like Ibrahim (2005), Karim and Majid (2010), Ali et al (2014) Singhania andPrakash (2014), andSaji (2021) found little evidence for the hypothesis of market integration.…”

Development of Vietnamese stock market: Influence of domestic macroeconomic environment and regional markets

“…In evidence from Latin America, Marcet (2017) focusing on six developing Latin American economies (Argentina, Brazil, Chile, Columbia, Mexico, Peru) reported significant evidence of co‐movement. In specific to Asian markets (excluding Vietnam) and Asian Pacific market, Kim et al (2015) and Lipinsky and Ong (2014) found evidence of greater idiosyncratic influences in the pricing of these stock markets. Their findings contradict the study by Gérard et al (2003) on three developed (United States, Japan and Hong Kong) and three emerging markets (Thailand, Malaysia and Korea) which suggested that the East Asian emerging markets may not yet be fully integrated.…”

“…On the aspect of co‐movement and influence of foreign stock markets on domestic markets, there are a number of studies which have reported varying degrees of co‐movement and integration in developed as well as developing markets (for instance, contrast, Bai & Chow, 2017; Batten et al, 2015; Bekaert, Hobrick, & Zhang, 2009; Dajcman, 2012; Gérard, Thanyalakpark, & Batten, 2003; Graham et al, 2013; Jinwoo, 2016; Kim, Kim, & Choi, 2015, Nasir & Du, 2018; Park, 2013; Uddin, Arouri, & Tiwari, 2014; Wang, 2013; Zhou, Zhang, & Zhang, 2012). Nevertheless, the empirical evidence also suggests that the Asian markets, in particular, have idiosyncratic dynamics when it comes to issues around co‐movements and integration (see Batten et al, 2015; Kim et al, 2015; Lipinsky & Ong, 2014). Since the Vietnamese economy has been going through liberalization, it is also intuitive that its stock market has become more integrated into the international markets over time.…”