Degree Of Capital Market Integration Research Articles

THE ANALYSIS OF CAPITAL MARKET INTEGRATION IN ASEAN REGION BY USING THE OGARCH APPROACH

Capital market integration is a topic that attracts a lot of research interests in regional and international capital markets. Unfortunately, the various studies that have been done tend to use analytical tools that have not been able to conclude the degree of capital market integration quantitatively, hence a study that is able to measure the degree of capital market integration quantitatively is required. This study investigated the capital markets integration in ASEAN by using the Orthogonal Generalized Autoregressive ConditionalHeteroscedasticity (OGARCH) method which could provide the degree of integration quantitatively. Capital markets studied were the Indonesia Stock Exchange, Kuala Lumpur Stock Exchange, Thailand Stock Exchange, Singapore Stock Exchange, and Philippines Stock Exchange during the period of January 2001 – December 2016. The result of this study was there was a co-movement among ASEAN capital markets studied, but not all these ASEAN capital markets were fully integrated. This study also found that Indonesia stock Exchange, Kuala Lumpur Stock Exchange, Stock Exchange Thailand, and Singapore Stock Exchange were integrated but Philippines Stock Exchange was not. ThePhilippines Stock Exchange tended to be segmented rather than integrated. DOI : https://doi.org/10.26905/jkdp.v21i2.1138

The Effect of Level of Intra Industry Competition and the Intensity of Role of Global Investors Toward Degree of Capital Market Integration in ASEAN

By the integration of the ASEAN capital markets, global investors need to diversify among industries in the ASEAN capital markets with the consideration that there is no relevancy regarding to diversify among countries. One way to measure the degree of integration in addition to cointegration techniques are already widely used is the correlation. The use of correlation is done not only to show different degree of integration but also intended to identify the determinant of market integration which starting from theory of stock market interdependence as proposed by Pretorius (2002). The first finding of this study is the different degree of integration at the country and industry levels in the ASEAN which reflects the difference in the benefits of international diversification among industries and countries as well as supporting the concept of time-varying integration of Bekaert and Harvey (1995). The second finding as the important result for this study is the effectiveness of the entropy index of Ruefli (1990) as a proxy for the level of intra industry competition in Singapore. The implication is global investors need to consider the dynamics of competition among firms within the industry in Singapore as the industry risk for conducting their international diversification strategy. The latest finding is Malaysian bourse still protective so that global investors need to be more active penetration by networking through the local brokerages in accordance to advice of Dvorak (2005).

Regional capital mobility in China: 1978–2006

We examine cross-region capital mobility in China and track how the degree of mobility has changed over time. The effects of fiscal and redistributive activities of different levels of government in China on private capital mobility are taken into account. Our results indicate that there was a significant improvement in capital mobility over time in China, particularly for private capital in the more developed regions. The central and provincial governments, via their taxation, spending, and transfers, loosen the relationship between private saving and investment and appear to promote capital mobility, particularly for less developed regions. There are considerable differences between more and less developed regions in terms of the degree of capital market integration and the improvement in capital mobility over time. The results have important policy implications on global re-balancing as well as regional development gap and risk-sharing within China.

Demographic trends and international capital flows in an integrated world

This paper examines the impact of projected demographic trends on international capital flows. The analysis builds upon a ten-region overlapping generations' model of the world economy where capital is mobile across regions. Results show that, over the first half of the century, emerging regions will finance the demand of capital coming from the developed world where population aging is relatively advanced. In particular, the findings suggest that in the coming decades China will be the world's main creditor region. However, in the second half of the century, India will take over this leading position because of the predicted decline in the Chinese labor force. An additional analysis demonstrates that the economic consequences of demographic changes depend on the degree of capital market integration between regions.

The impact of Asian crisis on market integration: evidence from East Asian real interest rates

This article examines the linkage of real interest rates for a group of East Asian countries. Monthly real interest rates data are considered for the USA, Japan, Korea, Singapore and Thailand from 1980 to 2005. It is found that the degree of capital market integration has increased after the Asian financial crisis in 1997. Before the crisis, both the US and Japanese capital markets dominated the region. After the crisis, the dominance of the Japanese market has completely disappeared while the US market remains the sole dominant player. Also it appears that Korea was insulated from the regional market influence before the crisis.

European capital market integration: An empirical study based on a European asset pricing model

This paper investigates the integration between the capital markets of 15 European countries, all of which are members of the European Union. Integration is tested under the joint hypothesis of a European multifactor asset pricing model. A European portfolio is constructed from which common factors are extracted using maximum likelihood factor analysis. Empirical tests are undertaken to determine whether these European factors are not only priced, but also equally priced across the European capital markets. The results show that a number of common factors are extracted from the European portfolio and a degree of capital market integration is shown to exist across the European capital markets.

Real interest rate linkages in the Pacific-Basin region

This paper examines the linkage of real interest rates of a group of Pacific-Basin countries with a focus on East Asia. We consider monthly real interest rates of US, Japan, Korea, Singapore, and Thailand from 1980 to 2006. The impulse response analysis and half-life estimation are conducted in a multivariate setting, adopting the bias-corrected bootstrap as a means of statistical inference. It is found that the degree of capital market integration has increased after the Asian financial crisis in 1997. The overall evidence suggests that the crisis has substantially changed the nature of the short run interactions among the real interest rates. Before the crisis, both the US and Japanese capital markets dominated the region. After the crisis, the dominance of the Japanese market has completely disappeared, while the US market remains as a sole dominant player and the Korean market has become more influential.

Integration among Major Capital Markets in the World: An Investigation Focusing on Firm Value

This study examines the degree of capital market integration among major stock markets in the world. Unlike prior studies that focus on stock returns, this study focus on firm values in investigating the degree of capital market integration. Specifically, I use firm value measures-such as price/cash flow, price/earnings and price/book-for a sample of large-cap firms from seven major industrial countries over the 1998~2002 period in order to examine the relative importance of country, industry, year and firm effects in explaining the variance of firm value. Our variance components analysis reveals that the extent to which firm values tend to differ across countries is not small. Specifically, in some model specification, the extent to which firm values vary across countries explains as much as over 15 percent of the total firm value variation. However this observation does not necessarily imply that the degree of integration of world capital markets is low, because business fundamentals tend to differ across countries to a similar or greater extent. Our results suggest that world capital markets are integrated in the sense that the firm-value difference across countries is not greater than the business fundamentals difference across countries.

: (Integration Among Major Capital Markets in the World: An Investigation Focusing on Firm Value)

This study examines the degree of capital market integration among major stock markets in the world. Unlike prior studies that focus on stock returns, this study focus on firm values in investigating the degree of capital market integration. Specifically, I use firm value measures-such as price/cash flow, price/earnings and price/book-for a sample of large-cap firms from seven major industrial countries over the 1998~2002 period in order to examine the relative importance of country, industry, year and firm effects in explaining the variance of firm value. Our variance components analysis reveals that the extent to which firm values tend to differ across countries is not small. Specifically, in some model specification, the extent to which firm values vary across countries explains as much as over 15 percent of the total firm value variation. However this observation does not necessarily imply that the degree of integration of world capital markets is low, because business fundamentals tend to differ across countries to a similar or greater extent. Our results suggest that world capital markets are integrated in the sense that the firm-value difference across countries is not greater than the business fundamentals difference across countries.

Real Interest Rate Linkages in the Pacific Basin Region

This paper examines the linkage of real interest rates of a group of Pacific-Basin countries with a focus on East Asia. We consider monthly real interest rates of the US, Japan, Korea, Singapore, and Thailand from 1980 to 2004. The impulse response analysis and half-life estimation are conducted in a multivariate setting, adopting the bias-corrected bootstrap as a means of statistical inference. It is found that the degree of capital market integration has increased after the Asian financial crisis in 1997. The evidence suggests that the crisis has substantially changed the nature of the short run interactions among the real interest rates. Before the crisis, both the US and Japanese capital markets dominated the region. However, after the crisis, the dominance of the Japanese market has completely disappeared, while the US remains as a sole dominant player.

Degree of Capital Market Integration and Impact of Equity linked Bonds Issuance - A Test With Korean Market

Degree of Capital Market Integration and Impact of Equity linked Bonds Issuance - A Test With Korean Market

Foreign Portfolio Equity Investments, Financial Liberalization, and Economic Development

Reform of local capital markets and relaxation of capital controls to attract foreign portfolio investments (FPIs) has become an integral part of development strategy. The proximity of market openings and large, sudden shifts in international capital flows gave credence to the notion that the liberalization was the primary culprit in precipitating the recent Asian crisis. Hence, this paper reassesses the benefits and costs of FPIs from the perspective of the recipients. Specifically, it discusses the various FPI contributions and presents empirical evidence regarding the relationship between FPIs and market development, degree of capital market integration, cost of capital, cross‐market correlation and market volatility. It is clear that the evidence on benefits of FPIs is strong, whereas the policy concerns regarding resource mobilization, market comovements, contagion, and volatility are largely unwarranted. The authors make some policy suggestions regarding preconditions for capital market openings, market regulation, and liberalization sequencing.

Risk Sharing and Industrial Specialization: Regional and International Evidence

We provide empirical evidence that risk sharing enhances specialization in production. First, we calculate an index of specialization for each of the European Community (EC) and non-EC OECD countries, U.S. states, Canadian provinces, Japanese prefectures, Latin American countries, and regions of Italy, Spain, and the United Kingdom. Then, we estimate the degree of capital market integration (risk sharing) within each of these groups of regions. Finally, we perform a regression of the specialization index on the degree of risk sharing, controlling for relevant economic variables and find a positive relation between the degree of specialization and the amount of risk sharing within a group. Instrumental variables regressions confirm that risk sharing is a causal determinant of specialization.

Deregulation and capital market integration: A study of the New Zealand stock market

Using the experience in New Zealand, we show that the removal of direct barriers to capital flows is associated with an increased degree of capital market integration in the post-reform period. We examine changes in the level of integration of the New Zealand's equity market around its radical deregulatory reforms in 1984. Our results are based on a single-latent-variable model. Also, before the reforms were introduced, the New Zealand stock market was influenced only by domestic factors. In contrast, the U.S. economy, proxying for global business conditions, had significant effects only in the post-reform period.

Capital Markets and External Current Accounts: What to Expect From the Euro

The paper compares the degree of capital market integration across euro-area countries with that across regions in Italy and provinces in Canada. Analyzing saving-investment correlations, and developing as well as fitting to the data a model of capital flows, reveal no compelling differences between the integration across countries before monetary union and that across the regions or provinces. The evidence does not suggest that EMU will prompt a major reallocation of net capital flows within the euro area that would entail sizable shifts in countries’ equilibrium current accounts.

Foreign Portfolio Equity Investments in Economic Development

.Hence, in this paper, we reassess the benefits and costs of FPIs from the perspective of the recipients byintegrating the theoretical literature with available empirical evidence, by providing new evidence, and byputting forward new concepts. After a brief discussion of the role of capital markets in economic development,we present evidence on contribution of emerging markets towards resource allocation and mobilization and therelationship between market development and growth. Next, we provide an in-depth analysis of thedevelopmental role ofFPIs. Specifically, we discuss the various FPI contributions and present empirical evidence regarding the relationship betweenFPIs and market development, degree of capital market integration, cost of capital, cross-market correlation and market volatility. It is clear that the evidence onbenefits of FPIs is strong, whereas the policy concerns regarding resource mobilization, market co-movements,contagion and volatility expressed by policy makers and some academics are largely unwarranted. Finally, wemake some policy suggestions regarding preconditions for capital market openings, market regulation, andliberalization sequencing in the hope that they would help towards preventing future crisis.*Bank of Montreal Chair in Finance and Banking, McGill University, Faculty of Management,1001 Sherbrooke Street West, Montreal, Canada H3A 1G5. I am grateful to John Boyd, Peter Christoffersen,Darius Miller, Michel Robe and participants at the Columbia University conferenceon ,Is Globalization of Capital Markets a Boost or Hindrance to Development?, for insightful comments. I thank Hyunchul Chung forresearch assistance, SSHRC for financial support and International Finance Corporation for providing data onemerging markets.Correspondence: errunza@management.mcgill.ca

Capital market integration in the Pacific Basin region: an impulse response analysis

We examine the extent of capital market integration in a group of Pacific Basin countries following the deregulation of their markets, and explore whether the financial influence of Japan in the region has overtaken that of the US. Looking at long-run comovements of real interest rates through the use of cointegration, and using impulse response analysis to examine the speed of adjustment of real interest rates to long-run equilibrium following a shock in one of the markets, which is another indicator of the degree of capital market integration, we find that these countries are closely linked with world financial markets and more so with Japan than with US.

Capital market integration in the Pacific-Basin region: An analysis of real interest rate linkages

This paper investigates the extent to which financial markets in the Pacific-Basin Region have become more integrated, by analysing the comovements of real interest rates. The paper uses cointegration and error correction models and draws inferences on the degree of capital market integration by looking at the speed of adjustment of real interest rates following a shock. The results show that there has been an increase in capital market integration with both U.S. and Japan during the 1980s. Japan has not, however, overtaken U.S. in dominating the financial markets of these countries, except possibly in the case of Malaysia. Capital market integration is found to be greater in Singapore, Hong Kong and Taiwan. On the other hand, Japan is the least integrated country with U.S.

Domestic savings, intra-national and intra-European Union capital flows, 1971–1991

This paper examines the relationship between savings and investment for the pre-1995 twelve members of the EU during the period 1971–1991. The results of the statistical analysis suggest that the capital market of the members of the EU resembles that of intra-national regions, implying a considerable degree of capital market integration. This conclusion, however, is subject to several caveats. The relationship between savings and investment in the case of Portugal, for example, is unusual.

Capital Market Integration in the Pacific Basin Region: An Analysis of Real Interest Rate Linkages

This paper investigates the extent to which financial markets in the Pacific Basin Region have become more integrated, by analyzing the comovements of real interest rates. The paper uses cointegration and error correction models and draws inferences on the degree of capital market integration by looking at the speed of adjustment of real interest rates following a shock. The results show that there has been an increase in capital market integration with both U.S. and Japan during the 1980s. Japan has not, however, overtaken U.S. in dominating the financial markets of these countries, except possibly in the case of Malaysia. Capital market integration is found to be greater in Singapore, Hong Kong and Taiwan Province of China. On the other hand, Japan is the least integrated country with the United States.