Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries

This research investigates the linear and asymmetric cointegration among the stock markets of ASEAN-5 (Association of Southeast Asian Nations, the five original member countries namely Malaysia, Indonesia, Singapore, the Philippines, and Thailand) and those of Europe, Japan, and the United States. D...

Full description

Saved in:

Bibliographic Details
Main Author:	Saeedi, Mitra
Format:	Thesis
Language:	English
Published:	2014
Subjects:	Stock exchanges - Southeast Asia Foreign exchange rates - Southeast Asia International trade - Southeast Asia
Online Access:	http://psasir.upm.edu.my/id/eprint/39705/1/FEP%202014%204%20IR.pdf
Tags:	Add Tag No Tags, Be the first to tag this record!

id	my-upm-ir.39705
record_format	uketd_dc
spelling	my-upm-ir.397052015-07-30T08:01:23Z Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries 2014-07 Saeedi, Mitra This research investigates the linear and asymmetric cointegration among the stock markets of ASEAN-5 (Association of Southeast Asian Nations, the five original member countries namely Malaysia, Indonesia, Singapore, the Philippines, and Thailand) and those of Europe, Japan, and the United States. Diversification plays an important role in the investment decision. Having the knowledge of the interdependence and integration of stock markets, investors try to diversify their assets internationally as long as the returns of the stocks in their portfolio from different markets are less than perfectly correlated with the national market. Testing for the asymmetric cointegration prevents problems that may result in misleading inference in symmetric cointegration test which ignores the intrinsic nonlinearities. This study is the first to examine the existence of asymmetric cointegration among the stock markets. It also contributes to the prior research by examining the importance of trade in explaining the interdependence among the stock markets of interest (trade relation hypothesis) and the possible long run and short run relationship among the two important monetary macroeconomic factors, interest rates and exchange rates, and the stock prices of ASEAN-5. The empirical analysis applies Autoregressive Distributed Lag and Asymmetric Autoregressive Distributed Lag cointegration tests over the period of 1990 to 2010. The results show no evidence of linear or asymmetric long run relationship among the stock markets. The Granger causality approach shows that the causality runs from European stock market to the stock markets of Indonesia and Thailand. Therefore, according to the results, there is a potential opportunity of portfolio diversification for the investors and portfolio managers from the major developed markets in the long run. The generalized variance decompositions and the correlation test with bootstrap procedure are employed to test the trade relation hypothesis. Based on the findings, the trade relation hypothesis fails to be a general rule in ASEAN-5 countries. Being segmented from the major developed markets, ASEAN-5 countries are examined for the possible long run and short run effects of local macroeconomic factors so the policy makers can adopt proper monetary policy to boost up their stock market performance attracting more international funds. Collectively, the results show no long run relationship among the interest rates and exchange rates and stock prices in ASEAN-5; however, from the generalized impulse response functions immediate and quick negative responses of the ASEAN-5 stock markets to innovations in the interest rates and exchange rates are felt. The findings of the study carry important implications for Policymakers, investors, portfolio managers, and scholars interested in ASEAN-5. Stock exchanges - Southeast Asia Foreign exchange rates - Southeast Asia International trade - Southeast Asia 2014-07 Thesis http://psasir.upm.edu.my/id/eprint/39705/ http://psasir.upm.edu.my/id/eprint/39705/1/FEP%202014%204%20IR.pdf application/pdf en public phd doctoral Universiti Putra Malaysia Stock exchanges - Southeast Asia Foreign exchange rates - Southeast Asia International trade - Southeast Asia
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English
topic	Stock exchanges - Southeast Asia Foreign exchange rates - Southeast Asia International trade - Southeast Asia
spellingShingle	Stock exchanges - Southeast Asia Foreign exchange rates - Southeast Asia International trade - Southeast Asia Saeedi, Mitra Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries
description	This research investigates the linear and asymmetric cointegration among the stock markets of ASEAN-5 (Association of Southeast Asian Nations, the five original member countries namely Malaysia, Indonesia, Singapore, the Philippines, and Thailand) and those of Europe, Japan, and the United States. Diversification plays an important role in the investment decision. Having the knowledge of the interdependence and integration of stock markets, investors try to diversify their assets internationally as long as the returns of the stocks in their portfolio from different markets are less than perfectly correlated with the national market. Testing for the asymmetric cointegration prevents problems that may result in misleading inference in symmetric cointegration test which ignores the intrinsic nonlinearities. This study is the first to examine the existence of asymmetric cointegration among the stock markets. It also contributes to the prior research by examining the importance of trade in explaining the interdependence among the stock markets of interest (trade relation hypothesis) and the possible long run and short run relationship among the two important monetary macroeconomic factors, interest rates and exchange rates, and the stock prices of ASEAN-5. The empirical analysis applies Autoregressive Distributed Lag and Asymmetric Autoregressive Distributed Lag cointegration tests over the period of 1990 to 2010. The results show no evidence of linear or asymmetric long run relationship among the stock markets. The Granger causality approach shows that the causality runs from European stock market to the stock markets of Indonesia and Thailand. Therefore, according to the results, there is a potential opportunity of portfolio diversification for the investors and portfolio managers from the major developed markets in the long run. The generalized variance decompositions and the correlation test with bootstrap procedure are employed to test the trade relation hypothesis. Based on the findings, the trade relation hypothesis fails to be a general rule in ASEAN-5 countries. Being segmented from the major developed markets, ASEAN-5 countries are examined for the possible long run and short run effects of local macroeconomic factors so the policy makers can adopt proper monetary policy to boost up their stock market performance attracting more international funds. Collectively, the results show no long run relationship among the interest rates and exchange rates and stock prices in ASEAN-5; however, from the generalized impulse response functions immediate and quick negative responses of the ASEAN-5 stock markets to innovations in the interest rates and exchange rates are felt. The findings of the study carry important implications for Policymakers, investors, portfolio managers, and scholars interested in ASEAN-5.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Saeedi, Mitra
author_facet	Saeedi, Mitra
author_sort	Saeedi, Mitra
title	Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries
title_short	Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries
title_full	Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries
title_fullStr	Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries
title_full_unstemmed	Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries
title_sort	stock market integration and its implications for international trade, exchange rates and interest rates in asean-5 countries
granting_institution	Universiti Putra Malaysia
publishDate	2014
url	http://psasir.upm.edu.my/id/eprint/39705/1/FEP%202014%204%20IR.pdf
_version_	1747811807025692672

Stock market integration and its implications for international trade, exchange rates and interest rates in ASEAN-5 countries

Similar Items