Assessing Financial Market Integration in Asia - Equity Markets

Measuring Financial Integration: Evidence from Ten Industries in a “US-Emerging World”

“…7 To get a homogeneous dataset, all indices are total return indices (TRIs) denominated in US dollars. Equity indices expressed in this form include reinvested dividends, retain only US inflation (i.e., no currency risk), and are widely used in the international finance literature (Bilson, Brailsford, & Hooper, 2001;Chambet & Gibson, 2008;de Jong & de Roon, 2005;Donadelli & Persha, 2014;Donadelli & Prosperi, 2012;Ferson & Harvey, 1994;Grootveld & Salomons, 2003;Harvey, 1995;Lee, Chen, & Chang, 2013;Pukthuanthong & Roll, 2009;Yu et al, 2010, among many others).…”

“…2 Cointegration measures try to capture the degree of integration across markets by means of short-and long-run linkages (Aggarwal, Lucey, & Muckley, 2004;Arshanapalli & Doukas, 1993;Chan, Gup & Pan, 1992, 1997Gallagher, 1995;Gilmore & McManus, 2002;Hatemi-J, 2012;Kasa, 1992;Kenourgios & Samitas, 2011;Manning, 2002;Voronkova, 2004, among others). Correlation-based measures examine international equity markets integration from the perspective of changes in the level of co-movements between their returns over time (Bekaert, Hodrick, & Zhang, 2009;Chambet & Gibson, 2008;Kuper & Lestano, 2007;Yang, 2005;Yu, Fung, & Tam, 2010, among many others). 3 Other measures instead rely on the time-varying nature of equity risk premia (Bekaert & Harvey, 1995;de Jong & de Roon, 2005;Donadelli & Prosperi, 2012;Panchenko & Wu, 2009).…”

“…Nevertheless, the degree of robustness of all these measures has recently been questioned (Bekaert et al, 2009;Carrieri, Errunza, & Hogan, 2007;Pukthuanthong & Roll, 2009;Volosovych, 2011;Yu et al, 2010). It is also worth noting that there is no a general consensus on whether advanced and emerging equity markets are fully integrated as well as on the shape of the financial integration process (Bekaert, Harvey, Lundblad, & Siegel, 2011).…”

“…Second, in contrast to existing empirical studies, we do not focus on the level of financial integration across equity markets belonging to the same regions (Claus & Lucey, 2012;Hatemi-J, 2012;Kenourgios & Samitas, 2011;Kim, Kim, & Wang, 2006;Phylaktis & Ravazzolo, 2002;Schotman & Zalewska, 2006;Volosovych, 2011;Voronkova, 2004;Yu et al, 2010;among others). Our sample includes 20 emerging equity markets and, as benchmark, the equity market of the United States.…”

Volatility and Correlation Dynamics of the MainlandChinese and Hong Kong Stock Markets: Evidence from the A-, B-, H- and Red Chip Markets

“…Several recent studies, including Yu et al [2010] and Chen et al [2011], have analyzed the degree of financial integration among the Chinese markets, and suggest that mainland Chinese and Hong Kong stock markets appear to be significantly correlated. Additionally, given the growing importance of Chinese economics and the integration of Chinese and world markets, a few studies have been done to analyze the volatility spillover between Chinese and related stock markets ( Johansson and Ljungwall [2009]; Moon and Yu [2010]; Zhou et al [2012]; and Allen et al [2013]).…”