FINANCIAL MARKET INTEGRATION OF ASEAN-5 WITH CHINA: AN ECONOPHYSICS APPROACH

2020 ◽  
Author(s):  
Rui Dias ◽  
◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
Cristina Vasco ◽  
...  
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Market Integration ◽  
Open Space ◽  
Financial Integration ◽  
Weak Form ◽  
International Markets ◽  
Portfolio Diversification ◽  
Stock Market Crash ◽  
Regional Markets

The main objective of this research is to estimate whether portfolio diversification is feasible in the financial markets of Indonesia, Malaysia, Philippines, Singapore and Thailand (ASEAN-5), and the market of China, in the context of the stock market crash in China in 2015. The purpose is to answer two questions, namely whether: (i) has the stock market crash in China increased financial integration in the ASEAN-5 financial markets and China? (ii) If the presence of long memories may put in question the diversification of portfolios? The results suggest that these markets are segmented, except for Malaysia/Singapore, bi-directional, and China/Filipinas, pre-crash. However, when analysing the stock market crash period, the results indicate 16 integrated market pairs with structure breakdown (in 30 possible). When compared with the previous sub-period it was found that during the stock market crash the level of financial integration increased significantly (533%). In the post-crash period, there were right integrated market pairs with broken structure. When compared to the crash period, the level of integration decreased in 50%. In addition, we observed that during the stock market crash these Asian markets did not have long memories, except for the Malaysian market, which reveals some predictability, that is, the increase in integration does not lead to persistence in these Asian markets. In conclusion, the ASEAN-5 markets and China mostly exhibit strong signs of efficiency in their weak form. The authors consider that the implementation of portfolio diversification strategies is beneficial for investors. These conclusions also open space for market regulators to take action to ensure better information between these regional markets and international markets.

scholarly journals RISK DIVERSIFICATION IN ASEAN-5 FINANCIAL MARKETS: AN EMPIRICAL ANALYSIS IN THE CONTEXT OF THE GLOBAL PANDEMIC (COVID-19)

2020 ◽  
Author(s):  
Rita Silva ◽  
◽  
Rui Dias ◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
...  
Keyword(s):  
Financial Markets ◽  
Global Economy ◽  
Open Space ◽  
Financial Integration ◽  
Correlation Coefficients ◽  
World Health ◽  
Stock Market Index ◽  
Risk Diversification ◽  
Global Pandemic ◽  
Regional Markets

The World Health Organization (WHO) has designated the new coronavirus infection as a global pandemic, based on the risk of contagion, and the number of confirmed cases in more than 195 countries. COVID-19 has an intense impact on the global economy, resulting from uncertainty and pessimism, with adverse effects on financial markets. Due to these events, this essay aims to estimate if the portfolio’s diversification is feasible in the financial markets of Indonesia, Malaysia, Philippines, Singapore, and Thailand (ASEAN-5), in the context of the global pandemic (Covid-19), regarding the period of July 1, 2019, to July 22, 2020. To achieve such an analysis, is intended to provide answers for two questions, namely: i) the global pandemic (Covid-19) has accentuated financial integration between the ASEAN-5 markets? ii) If so, can the persistence of returns affect the risk diversification of portfolios? The results obtained suggest that those regional markets present accentuated levels of integration. However, the Singapore's stock market index does not show any level of integration, indicating that the implementation of portfolio’s diversification strategies can be considered; however, the same can no longer be evident for the other ASEAN-5 markets. Additionally, we verified that the ASEAN-5 markets indicate persistence in returns, that is, the presence of accentuated long memories, except for the Singapore market (SGX). These findings show that prices do not fully reflect the information available and that changes in prices are not independent and identically distributed. This situation is found for investors, since some returns can be expected, creating opportunities for arbitrage and abnormal earnings. Corroborating the trendless cross-correlation coefficients (𝜆𝐷𝐶𝐶𝐴), proven evidence coefficients, mostly, suggest the existence of risk transmission between markets. In conclusion, the authors seek that the implementation of an efficient diversification strategy for portfolios requires agreement with the controversial application. These conclusions also open space for the regulators of these regional markets to take measures to ensure better information between these markets and international markets.

scholarly journals DETERMINANTS OF G7 AND CHINESE STOCK MARKET RETURNS DURING COVID-19 OUTBREAK

2020 ◽  
Vol S.I. (1) ◽  
pp. 256-266
Author(s):  
Ahmed JERIBI ◽  
◽  
Mohamed FAKHFEKH ◽  
Keyword(s):  
Growth Rate ◽  
Stock Market ◽  
Financial Markets ◽  
Portfolio Diversification ◽  
Chinese Stock Market ◽  
Market Returns ◽  
Stock Market Returns ◽  
Hedging Strategies ◽  
The Us

The purpose of this paper is to discuss the determinants of G7, and Chinese stock market returns during the COVID-19 outbreak. We find that Bitcoin and Ethereum can generate benefits from portfolio diversification and hedging strategies for G7 financial investors in early 2020. Our result reveals that Gold is neither hedge nor haven during the COVID-19 pandemic. In addition, the results indicated that the expected volatility of the US stock market has no effect on the Japanese and Chinese financial markets. Finally, our results suggest that the growth rate of confirmed COVID-19 cases and deaths has an impact only on the US stock market.

scholarly journals Cross-Country Stock Market Integration and Portfolio Diversification Opportunities Evidence from Developed, Emerging and Frontier Countries

2020 ◽  
Vol 39 (1) ◽  
Author(s):  
Sultan Salahuddin ◽  
Muhammad Kashif ◽  
Mobeen Ur Rehman
Keyword(s):  
Stock Market ◽  
South Korea ◽  
Market Integration ◽  
Portfolio Diversification ◽  
Stock Market Integration ◽  
Country Level ◽  
Low Correlation ◽  
Long Run ◽  
Short Run ◽  
Cross Country

This study examines the stock market integration in cross-regional countries of developed, emerging, and frontier markets based on low correlation. The objective of the study is to identify the diversification opportunities and link between correlation and integration among country-level stocks. For this purpose, we select 62 countries from all three classifications of developed, emerging, and Frontier Markets. We constructed portfolios by selecting least 5 correlated countries denoted with Pjt in which each country has a correlation of less than .10 with base country Pit. Thirty-two countries fulfill the criteria of low correlation; 7, 13 and 12 from developed, emerging and frontier markets, respectively. Panel co-integration and VECM are applied to test the stock market integration and long & short-run linkages between country-level portfolios designed based on low correlation criteria. After conditioning for oil price movements, S&P 500 and exchange rate, we found Canada, France and Germany from developed category; Chile, Colombia, Greece, South Korea, Malaysia, Pakistan and Philippine from emerging category; and Bahrain, Jordan, Kuwait, Morocco, and Sri Lanka from frontier category have long-run diversification opportunities. Countries including; Canada and Italy from developed category; Argentina, Chile, China, Colombia, India, Indonesia, South Korea, Mexico and the Philippine from emerging category; and Bahrain, Kuwait, Morocco, Nigeria, and Tunisia from emerging category have short-run diversification opportunities.

scholarly journals The Paradigm Shift in the Pakistan Stock Exchange’s Financial Integration Post-FTA and CPEC

2018 ◽  
Vol 23 (1) ◽  
pp. 21-50 ◽  
Author(s):  
Abdul Wahid
Keyword(s):  
Paradigm Shift ◽  
Free Trade Agreement ◽  
Financial Integration ◽  
Stock Exchange ◽  
Trade Agreement ◽  
International Markets ◽  
Global Markets ◽  
Stock Exchanges ◽  
Volatility Spillovers ◽  
Regional Markets

This paper examines whether regional connectivity causes return and volatility spillovers and the co-movement of stock exchanges to shift from international to regional markets. Using the China-Pakistan free trade agreement (FTA) of 2006 and the China-Pakistan Economic Corridor (CPEC) agreement to represent events of regional connectivity, we test this proposition based on data for two regional stock exchanges (the Pakistan Stock Exchange and Shenzhen Stock Exchange) and two global markets (the FTSE 100 and Nasdaq). We divide the convergence and co-integration of the stock markets into three phases: overall sample (2001–17), pre-FTA and post-FTA, and pre-CPEC and post-CPEC. Applying a GARCH (1, 1) model, co-integration, Granger causality and seasonality, we find that regional connectivity causes return and volatility spillovers and co-movements in the Pakistan Stock Exchange to shift from international markets to regional markets.

scholarly journals Measuring Co-Movements and Linkages between Nigeria and the UAE Stock Exchanges: Is there Opportunity for Portfolio Building?

2020 ◽  
Vol 1 (2) ◽  
pp. 106-122
Author(s):  
Shafiu Abdullahi
Keyword(s):  
Stock Market ◽  
Financial Market ◽  
Market Integration ◽  
Stock Exchange ◽  
Portfolio Diversification ◽  
Empirical Literature ◽  
Stock Exchanges ◽  
Financial Contagion ◽  
Stock Market Integration ◽  
Short Run

Purpose: The main objective of this study is to examine the relationship between Nigerian Stock Exchange and Dubai stock exchange with the aim of finding out the direction of movements between their respective indices. Approach/Methodology/Design: The methodology adopted for the analysis is ARDL cointegration model and the Generalized Method of Moment (GMM). This is because of their known efficiency in detecting patterns between variables. Findings: The result of the short-run analysis using GMM shows that there is existence of short-run causality between the Dubai financial market (DFM) and the Nigerian stock exchange (NSE). Thus, for investors looking for short- run arbitrage opportunity between the markets, they shall look elsewhere. But, the result of bound testing has shown lack of cointegration between the two markets. This is a sign of existence of opportunities for portfolio diversification between Nigeria stock exchange and Dubai financial market, since the two markets are not cointegrated in the long-run. Practical Implications: The study helps bridge the empirical literature gap in stock market integration and portfolio diversification with reference to the Nigeria and UAE. It will, therefore, guide local and foreign investors with interest in Nigeria and UAE Stock Exchanges. It will also guide Nigerian and UAE policy makers to understand the market better, especially as it concerns financial contagion. Originality/value: This study provides further evidence on stock market integration in emerging markets. New researches shall adopt different methodology such as use of volatility tracking models to measure volatility linkage between the markets.

scholarly journals TESTING THE EMPIRICS OF WEAK FORM OF EFFICIENT MARKET HYPOTHESIS: EVIDENCE FROM LAC REGION MARKETS

2020 ◽  
Author(s):  
Hortense Santos ◽  
◽  
Rui Dias ◽  
Paula Heliodoro ◽  
Paulo Alexandre ◽  
...  
Keyword(s):  
Random Walk ◽  
Financial Markets ◽  
Weak Form ◽  
Fluctuation Analysis ◽  
Linear Component ◽  
Test Results ◽  
Random Walk Hypothesis ◽  
Regional Markets ◽  
Two Samples ◽  
Non Linear

The new coronavirus disease (Covid-19) evolved quickly from a regional health outbreak to a global collapse, stopping the global economy in a unprecedented way, creating uncertainty and chaos in the financial markets. Based on these events, it is intended in this paper to test the persistence of profitability in the financial markets of Argentina, Brazil, Chile, Colombia, Peru and Mexico, in the period between January 2018 to July 2020. In order to perform this analysis where undertaken different approaches in order to analyze if: (i) the financial markets of Latin America are efficient in their weak-form during the global pandemic (Covid-19)? ii) If so, the persistent long memories cause risks between these regional markets? The results suggest that the returns don’t follow the i.i.d. hypothesis, from dimension 2, reinforcing the idea that returns of stock indexes have a non-linear nature or a significant non-linear component, exception made to the Argentina market, which was expected in virtue of the Ljung-Box (with the return squares) test results, and ARCH-LM. Corroborating the exponents Detrended Fluctuation Analysis (DFA), indicate the presence of persistent long memories, namely into the following markets: Colombia (0.72), Chile (0.66), Brazil (0.58) and Peru (0.57). The Argentina market does not reject the random walk hypothesis, while the Mexican market suggests some anti-persistence (0.41). This situation has implications for investors, once that some returns can be expected, creating arbitration opportunities and abnormal income, contrary to the supposed from the random walk hypothesis and information efficiency. The t-test results of the heteroscedasticity form the two samples suggest that there is no risk transmission between these regional markets, with the exception to the BOVESPA / BOLSAA MX markets, that is, the existence of persistent long memories in the returns does not imply the risk transmission between markets. These finds allow the creation of strategies of diversification inefficient portfolios. These conclusions also open space for the market regulators to implement measures that guarantee a better informational information of these regional markets.

Financial Development, International Trade, and Stock Market Integration: Evidence in Six Southeastern Asia Countries

2017 ◽  
pp. 5-17 ◽  
Author(s):  
Tram Hoang Thuy Bich Nguyen ◽  
Anh Huynh Lam
Keyword(s):  
International Trade ◽  
Stock Market ◽  
Financial Development ◽  
Market Integration ◽  
Financial Integration ◽  
Bilateral Trade ◽  
Random Effect ◽  
Trade Integration ◽  
Stock Market Integration ◽  
Integration Degree

Measuring the integration degree of the national stock market is popular in the general globalization trend. This paper applies the measurement method of Chaiporn et al. (2016) to consider the Vietnamese stock market, and five other typical Asian economies in the period from 2000 to 2015. The authors’ method has its foundation in the research of Wälti (2011), An and Zhang (2013) and Dasgupta (2010). The paper adopted the fixed effect and random effect models to measure the impacts of financial development, financial integration and international trade integration to national stock market integration. The research findings revealed the positive affect of financial integration and development on the national stock market’s integration with the global stock market in Vietnam and five other countries. In addition the research found international trade integration does not affect the integrating securities market, possibly because the bilateral trade is too small to impact the bilateral stock market’s integration.

scholarly journals Co-Movements Of U.S. And European Stock Markets Before And After The 2008 Gloal Stock Market Crash

2015 ◽  
Vol 10 (2) ◽  
pp. 83-98
Author(s):  
Ilhan Meric ◽  
Lan Ma Nygren ◽  
Jerome T. Bentley ◽  
Charles W. McCall
Keyword(s):  
Stock Market ◽  
Stock Markets ◽  
Empirical Studies ◽  
Portfolio Diversification ◽  
Stock Market Crash ◽  
Market Crashes ◽  
Before And After ◽  
European Stock Markets ◽  
Global Stock ◽  
The U.S

Abstract Empirical studies show that correlation between national stock markets increased and the benefits of global portfolio diversification decreased significantly after the global stock market crash of 1987. The 1987 and 2008 crashes are the two most important global stock market crashes since the 1929 Great depression. Although the effects of the 1987 crash on the comovements of national stock markets have been investigated extensively, the effects of the 2008 crash have not been studied sufficiently. In this paper we study this issue with a research sample that includes the U.S stock market and twenty European stock markets. We find that correlation between the twenty-one stock markets increased and the benefits of portfolio diversification decreased significantly after the 2008 stock market crash.

scholarly journals International Financial Integration and Crisis Contagion

2019 ◽  
Vol 87 (3) ◽  
pp. 1174-1212 ◽  
Author(s):  
Michael B Devereux ◽  
Changhua Yu
Keyword(s):  
Financial Markets ◽  
Market Integration ◽  
Solution Method ◽  
Financial Integration ◽  
Trade Off ◽  
Developed Economies ◽  
International Financial Integration ◽  
State Of The Economy ◽  
Cross Country ◽  
The Impact

Abstract International financial integration helps to diversify risk but also may spread crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with collateral-constrained borrowing using a global solution method. Borrowing constraints bind occasionally, depending upon the state of the economy and levels of inherited debt. We examine different degrees of international financial integration, moving from financial autarky, to bond and equity market integration. Financial integration leads to a significant increase in global leverage, substantially escalates the probability of crises for any one country, and dramatically increases the degree of “contagion” across countries. Outside of crises, the impact of financial integration on macroeconomic aggregates is relatively small. But the impact of a crisis with integrated international financial markets is much less severe than that under financial market autarky. Thus, a trade-off emerges between the probability of crises and the severity of crises. Using a large cross-country database of financial crises in developing and developed economies over a forty-year period, we find evidence in support of the model.

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