Financial integration and diversification benefits: China and ASEAN4 countries

Abstract

Purpose – The strategic partnership between China and ASEAN has resulted in significant financial reforms at the country and regional level. The scale and pace of these changes call for systematic assessments of their bearing on the development and integration of financial markets in this region. The purpose of this paper is to investigate the level of financial integration of the equity markets in China and ASEAN4 countries (Indonesia, Malaysia, Philippines, and Thailand) for the period 2004-2014. Design/methodology/approach – The authors use the β and σ convergence, dynamic conditional correlation, and wavelet correlation to assess the degree, trend, and change across different time scales of the integration of China-ASEAN4 equity markets. Using two measures of change in return per unit risk and variance, we assess the difference in diversification benefits between an equity portfolio China-ASEAN4 and China-EU. Findings – The authors find that financial integration across China-ASEAN4 equity markets fluctuated between a moderate level before and after the recent crisis and a higher level during the crisis. The results indicate that investors achieve higher diversification benefits from a cross-industry than a cross-country investment strategy within this region. Research limitations/implications – Future research should investigate whether local factors and existing cultural and political differences explain the weak to moderate level of integration of China and emerging ASEAN equity markets. Practical implications – A good understanding of the degree and evolution of the regional financial integration may be used by investors to allocate capital efficiently when adding ASEAN4 equities to a portfolio of Chinese equities. Social implications – Systematic assessments of the regional financial integration contribute to the effort to mitigate the ensuing cross-border financial contagion during crises. Originality/value – The authors argue that that the increase in correlations of CHINA-ASEAN4 equity markets during the recent crisis does not reflect a permanent shift in the dynamic of the dominant markets in the region. While investors achieve higher diversification benefits from a cross-industry than a cross-country investment strategy within this region, the diversification benefits are lower for long-term than short-term investors.

Does Islamic equity investment provide diversification benefits to conventional investors? Evidence from the multivariate GARCH analysis

“…As for the daily returns, the study concluded that China's market correlation with other five emerging Asian markets including Malaysia is much higher compared to that of Australia and the USA. A similar result was also found by Nguyen and Elisabeta (2016) indicating that the level of financial integration across China and four ASEAN equity markets (Indonesia, Malaysia, Philippines and Thailand) increased significantly during the financial crisis period. Meanwhile, Christoffersen et al (2012Christoffersen et al ( , 2014 who investigated the correlations of weekly returns for 16 developed markets such as Australia, France, Germany, Japan, the UK and the USA and several emerging markets including Malaysia over the period January 12, 1973, to June 12, 2009, and January 12, 1973, to December 28, 2012, respectively, using several econometric models including dynamic conditional copula approach, BEKK, DCC and DECO, found that the level of diversification benefits offered by the emerging markets is still quite high.…”

Time-varying Correlation Between Indian Equity Market and Selected Asian and US Stock Markets

“…Chiang and Chen (2016) found the highest correlation of China with Hong Kong, followed by Taiwan and Korea, and low correlation between Europe and the USA. Nguyen and Elisabeta (2016) investigated the integration among China and Association of South East Asian Nations' (ASEAN) stock as well as the sectoral market (consumer goods, financial, industrial, Properties and real estate) by employing the DCC-MGARCH model with a discrete wavelet transformation (DWT), and Paramati, Roca, and Gupta (2016) investigated integration and dynamic linkage in 10 Asian markets over 13 years of weekly observations through co-integration, ADCC and panel regression models and found increasing economic integration both in the short and in the long run among the sample markets during the study period. Rehman (2017) examined the time-varying co-movements of Japanese stock markets with selected economic fundamentals (such as implied volatility index, policy uncertainty index, oil price, exchange rate and inflation) and reported a significant impact of exchange rate and oil price changes on the time-varying correlation between implied volatility index and stock market returns.…”

Integrasi Pasar Saham Indonesia Dengan Pasar Saham Asia

“…Keterkaitan antar bursa ini disebut Contagion Effect yaitu kondisi suatu bursa akan mempengaruhi bursa yang lain dimana bursa yang lebih besar akan mempengaruhi bursa yang lebih kecil. Integrasi antar pasar saham Asia maupun secara global telah terbukti dari hasil penelitian (Mohti, Dionísio, Vieira, & Ferreira, 2019), (Karim & Majid, 2010), (Arsyad, 2015), (Boubakri & Guillaumin, 2015), (Dhanaraj, Gopalaswamy, & Babu M, 2013), (Hooy & Lim, 2013), (Lee, 2019), (Mukherjee & Mishra, 2010), (Narayan, Sriananthakumar, & Islam, 2014), (Nguyen & Elisabeta, 2016), (Shegorika Rajwani Jaydeep Mukherjee, 2013).…”