Does economic integration lead to financial market integration in the Asian region?

Song, Yuegang; Huang, Robin) Hui; Paramati, Sudharshan Reddy; Zakari, Abdulrasheed

doi:10.1016/j.eap.2020.12.003

Cited by 18 publications

(24 citation statements)

References 39 publications

(37 reference statements)

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“…With time series and panel regression authors tried to find a relationship between conditional correlation and trade. Song et al (2021) had used this conditional correlation to study the increasing integration between stock markets of Indian and its Asian counterparts. Author did not find any study on Indian context, which has observed the relationship of trade with integration and the influence of trade on changing pattern of integration.…”

Section: Introductionmentioning

confidence: 99%

Stock Market Integration and Trade: A Study on India and its Major Trading Partners

Jana

2021

Vision: The Journal of Business Perspective

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Indian stock market is increasingly integrated with other markets of the world after economic liberalization. This linkage of Indian stock market reduces the scope of risk minimization of portfolio by diversifying between stock markets of India and its integrated partners. Researchers indicate that economic variables influence the integration of stock markets. Trade is one of the major parameters. In this study effort has been made to find how Indian stock market integration varies with amount of trade with its trading partners. Hence 21 years’ weekly data from 1 January 1999 to 31 December 2019 have been collected for 15 countries, which belong to the list of top 25 trading partners of India since 1999. Total sample of 15 countries have been divided into two groups—Asia Pacific and European group along with United States, to check whether integration increase with trade. Johansen Cointegration test has been used between stock markets of India and two groups of countries. To confirm the result of Johansen cointegration test, the same test was ran on joint index for each group and Sensex of India. It also helped to check the effect of geographical proximity on this integration. Conditional correlation was found using asymmetric generalized dynamic conditional correlation (AGDCC) GARCH model, between Sensex and each of the 15 countries, to observe the time varying nature of correlation. Twenty one year’s data has helped to find the impact of global financial crisis (GFC) of 2008 on these interlinkages. Lending rate differential and inflation rate differential can cover many economic parameters, hence used as control variable. Time series regression has been used to find the impact of trade, interest rate and inflation differential on correlation between Indian stock market index and index of any other countries. Pooled panel regression has been used to check the same relationship on all countries in every group. Nine Asian countries together contribute higher amount of trade with India since 2004 than jointly five European countries and the United States. Trade difference is very low, hence this study analysed both the groups. Asia Pacific group of countries is more integrated with India than European group and the United States. None of the joint index is integrated with Indian stock market index. Conditional correlation between Indian index and each of the country has changed over time. Time series regression implies that except very few cases, trade and other economic factors cannot influence the integration. As expected, the interest rate differential and inflation differential have negative and positive impacts on the correlation respectively but these impacts are not significant in many cases. Pooled panel regression shows that trade and GFC have positive and significant impact on correlation between India and Asia Pacific countries but not with the same between India and European countries and United States. International investors will not be able to reduce their portfolio risk by diversifying between India and any other of the 15 countries in the sample because all of them are integrated with Indian stock market. Trade of India with Asian countries has increased in recent years and integration has also increased. Although time series and pooled panel regression do not prove it’s significant impact on conditional correlation between India and the sampled countries. But trade between two countries definitely bear a role in integration.

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Section: Introductionmentioning

confidence: 99%

Stock Market Integration and Trade: A Study on India and its Major Trading Partners

Jana

2021

Vision: The Journal of Business Perspective

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“…In time series, the more data we observe will make a better result. For that reason, we use daily data as the process of [11], [12], [15]- [17], [25], [30].…”

Section: Methodsmentioning

confidence: 99%

Does the East and Southeast Asian Equity Market have Integration? A Study of Cointegration Analysis

Prasetya¹

2022

ijcsrr

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Financial integration can improve the efficiency of capital allocation as well as help diversify risks. This study aims to find and analyze four cases. First, to find and analyze the long-term cointegration between East and Southeast Asian. Second, to find and analyze the short-term causal relationship between East and Southeast Asian equity market. Third, to find the most influential equity market from East Asian toward their Southeast Asian and the most influential equity market from Southeast Asian toward their East Asian. Last, to find the forecast structural analysis for five days horizon period of each country’s price, both East and Southeast Asia. This study uses Johansen’s cointegration method to test long-run relationships between East and Southeast Asian equity markets, Granger-causality, forecast variance decomposition method and forecast with VECM. This study uses daily indices prices collected from Refinitive covered from January 2002 to December 2019. Johansen’s test emphasize that there is a cointegration relationship between East Asian and Southeast Asian stock markets, but the integration process is incomplete. The cointegration vector also emphasize that ASEAN+3 members react differently to external shocks. This study found that the Japan Granger-cause will lead to all stock markets in Southeast Asia, while Singapore and Philippine Granger-cause will lead to all stock markets in East Asia. These results show that Japan is the market with the most connections in Southeast Asia, while Singapore and Philippine are the markets with the most connections in East Asia. Another point of this paper is to emphasize that Japan is the most influential stock market in East Asia, while Singapore is the most influential stock market in Southeast Asia. This study shows that policymakers in East and Southeast Asian countries should synchronize capital market standards, regulations and reduce barriers to capital flow to stimulate the integration of regional stock markets.

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“…The third category of researches found the influence of one stock markets on the other with Pearson correlation (1,18,19) and conditional correlation. (3,20,21) But the degree of changing integration can be better measured with the help of the Geweke method. Bracker et al, 22 Johnson and Soenen 23 and Mukherjee and Mishra 2 used Geweke feedback to measure the degree of changing integration.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Very few studies (2,3) have attempted to find this changing degree of integration between stock markets of India and other countries, and its relationship with economic variables. Using Geweke feedback method, Mukherjee and Mishra 2 proved that Indian stock market integration is changing with time.…”

Section: Introductionmentioning

confidence: 99%

“…Export and import of other countries with India influence this changing integration in positive and negative ways, respectively, but other economic variables have no role in this. With the help of asymmetric generalized dynamic conditional correlation (AGDCC) generalized autoregressive conditional heteroscedasticity (GARCH) model, Song et al 3 showed that the integration between stock markets of India and other Asian countries is changing with time. They concluded that trade and other economic variables such as gross domestic product (GDP) growth, inflation differential, interest rate differential and global financial crisis positively influence this changing integration.…”

Section: Introductionmentioning

confidence: 99%

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Economic Determinants of Changing Integration: A Study on India and Its Major Trading Partners

Jana

2022

Metamorphosis: A Journal of Management Research

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This article has investigated, first, the changing degree of integration the using Geweke Feedback method between the stock indices of India and its 13 major trading partners, and second, the relationship between trade and this changing integration. Geweke feedback helped to measure the contemporaneous feedback between stock markets of India and the sampled countries, and it also measured the lead of Indian stock market on other markets and vice versa. Geweke feedbacks have been measured between the stock market of India and those of the sampled countries for the whole sample period and every year during 1999–2020. It helps to reach the conclusion that the contemporaneous effect is very high between the Indian stock market and other stock markets. The Indian stock market leads stock markets of Asian countries, whereas European countries and USA lead the Indian stock market. The effect of trade and other economic variables, on these Geweke feedbacks have been assessed through pooled time series regression. Import of India and inflation differential are statistically significant to assess contemporaneous feedback. Export from sampled countries to India, inflation, and interest rate differential and trend are statistically significant to explain lead feedbacks.

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Does economic integration lead to financial market integration in the Asian region?

Cited by 18 publications

References 39 publications

Stock Market Integration and Trade: A Study on India and its Major Trading Partners

Stock Market Integration and Trade: A Study on India and its Major Trading Partners

Does the East and Southeast Asian Equity Market have Integration? A Study of Cointegration Analysis

Economic Determinants of Changing Integration: A Study on India and Its Major Trading Partners

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