Stock Market Integration Research Articles

Integration of the Indian stock market with the world market: a study based on the time-varying Kalman filter approach

This paper examines the time-varying integration of the Indian stock market with the world market using Kalman filter approach. We consider major stock indices from the Indian stock market which includes S&P CNX Nifty, CNX 200, S&P CNX 500, CNX Nifty Junior, CNX Midcap and CNX Smallcap. Our approach involves the computation of an appropriate return index, based on the capital asset pricing model (CAPM), which can capture the sensitivity of the given stock returns to the market risk. Our findings confirm the time-varying integration of the S&P CNX Nifty with the world market over the study period. However, S&P CNX 500, CNX 200 and CNX Midcap exhibit deviation from the integration relationship during the period of the global financial crisis. The CNX Midcap and CNX Smallcap display deviation from the integration relationship during most of the periods before sub-prime crisis.

Does U.S. Sub-Prime Crisis Impede Asian Equity Indices Integration Strengthens?: An Ardl-Bounds Testing Approach

Promotion of regional stock market integration is critically meaningful for regional development. Since last couple of decades stock markets Integration has been widely seen as the most exciting and promising area for investment, especially because they are expected to generate high returns and to offer good portfolio diversification opportunities. Consequently, these markets have known a considerable expansion. For this motive, we examine the integration of principal Asian equity markets namely; Taiwan, Sri Lanka, Korea, China, Japan, Malaysia, Hong Kong, India, Singapore and Pakistan employing ARDL bounds testing approach to co-integration and VECM. The study employed monthly stock indices data covering from July 1997 to June 2015. For this purpose list of following indices are used to represent the markets: TSEC weighted index for Taiwan, CSE for Sri Lanka, KOSPI composite index for Korea, SSE composite index for China, Nikkei 225 index for Japan, FTSE 100 index for Malaysia, Hang Seng index for Hong Kong, BSE Sensex for India, Strait Time Index for Singapore and KSE 100 index for Pakistan. We investigate null hypothesis (H0) of no long run relationship as well the direction of causality in case of rejection of (H0). Study explore the Asian markets are integrated during sample period of pre- and post-2008 U.S sub-prime crisis which is in line with prior literature, to extent, this study further explore more attractive results of integration among sample indices and concludes that adjustment of (ECT-1) improved expressively in post-crisis period compare to pre-crisis period over sample years. This implies that the strength of long-run relationship among Asian markets increase over the post-crisis period. The overall comparison results of sample Asian stock indices pre- and post U.S sub-prime crisis conclude that, the integration of sample indices are more strengthen in Asian markets after the global financial crisis. It would be interesting to further explore the factors leading for market integration like, trade flow of the countries, foreign institutional/private portfolio investments, previous equity returns and more precisely put on structural breaks to measure the strength of US crisis period. In addition, it would be more strengthen to make sound policy coordination among Asian region to overcome the influence of economic instabilities and financial fluctuations.

Stock Market Integration in Asia: Global or Regional? Evidence from Industry Level Panel Convergence Tests

This paper examines global and regional stock market integration in Asia at both the aggregate and disaggregate (industry) level by applying the Phillips-Sul (2007) tests for panel and club convergence. The main findings can be summarised as follows. In the pre-2008 crisis period, no integration/convergence of any kind is found. By contrast, in the post-crisis period, the Asian stock markets appear to be integrated both globally and regionally at the aggregate level; at the industry level, there is evidence of both global and regional integration in 6 out of 10 cases, the exceptions being Financials and Telecommunication, both in a turn-around phase, and Gas & Oil and Technology, for which there is no panel convergence. Club convergence tests reveal the existence of convergence clubs and divergent economies within the full panel, which explains why panel convergence is not found for the pre-crisis period and for the Gas & Oil and Technology sectors in the post-crisis period.

Dynamics of indian stock market integration with global stock markets

Dynamics of indian stock market integration with global stock markets

Analysis of the efficiency–integration nexus of Japanese stock market

This paper attempts a novel approach in analysing the Japanese economy through a dual-dimension analysis of its stock market, examining the efficiency and market integration. Taking a period of 24 years, this study employs MFDFA and MGARCH to understand how the efficiency and integration of the stock market faired during different business cycle phases of the Japanese economy. The results showed improving efficiency over the time period. For the case of market integration, our findings conform to recent literature on business cycles and stock market integration that every succeeding recession creates a break into integration levels resulting in a decrease.

Stock Market Integration in China: Evidence from the Asymmetric DCC Model and Copula Approach

We investigate the dynamic dependence structure between the daily stock returns of the A and B shares of the Shanghai and Shenzhen stock markets in China, using time-varying conditional copula and asymmetric dynamic conditional correlation models. We find that the Shanghai market’s A and B shares are more integrated than those of the Shenzhen market. Further, the dynamic dependences between the shares for both markets are asymmetric and lower-tailed, and an increasing correlation with the opening up of the B shares market to Chinese citizens around 2001 is evident.

Stock Market Integration as a part of Financial Market in the ASEAN Economic Community

This paper is trying to assess whether the stock market in the Association of Southeast Asian Nations (ASEAN) countries, among others Indonesia, Thailand, Singapore, Philippine, Malaysia, and Vietnam, are integrated monthly data from January 2000 until August 2014. To support that analysis, a somewhat similar approached is done for the foreign exchange market in the same ASEAN member countries. The empirical results suggest that the ASEAN stock markets are co-integrated (except Philippines). Also, there is a positive relationship between Indonesia's and other ASEAN member countries' foreign exchange market. Those analysis were done in relationship with the new regional condition, faced by the new government just recently elected, that is, the ASEAN common market, which would be implemented in 2015.

Integration of Exchange Rate and Stock Market : Evidence from the Indian Stock Market

The stock market represents the financial health of an economy, while the exchange rate represents the country's currency value against the value of international currency. After economic reforms in India post 1991, the economic and overall growth got a boom because of globalization and privatization. These reforms enhanced the imports and exports and brought volatility in the exchange rate. The current research work investigated the rapport among Nifty index returns in India and the Indian exchange rate in consideration with the U.S. dollar. The exchange rate volatility generates volatility in the stock market, which creates confusion in the minds of domestic investors as well as for foreign institutional investors. The main purpose of conducting this research was to find out the impact of change in the exchange rate in India on the trading volume and returns of Nifty index. To examine the relationship between stock market returns and exchange rate, econometric tools like ADF test, correlation, Johansen's co-integration test, and Granger causality test were applied with the help of EVIEWS program. The study was conducted during the period from April 2005 till March 2014. The empirical analysis showed that negative correlation existed among the stock market returns and exchange rate; however, the degree of correlation was not very significant. Co-integration test results showed that there was an absence of co-integration among the variables. The Granger causality test indicated that Nifty stock returns Granger caused the rupee-dollar exchange rates in India. This paper provides suggestions to the investors regarding the strategies that they can opt for trading in volatile stock markets to minimize risk or fear of bearing losses.

Commodity-driven integration of stock markets in Africa

ABSTRACTThis article examines stock market integration for commodity-dependent African countries. The analysis is carried out in two phases – first we adjust the respective national equity returns for changes in commodity prices and examine integration in the context of commodity-adjusted stock returns, and second we focus on integration associated with changes in commodity prices in a novel modelling framework. The results for this unexamined area of research are interesting: (a) African stock markets are not driven by more than one common component and (b) commodity-adjusted integration is significantly lower than nonadjusted integration. We discuss the implications of the results for index construction, modelling and diversification in the conclusions.

Put All the Eggs in the Same Basket An Empirical Examination of US Monetary Policy Stance and Asian Stock Markets Integration

The objective of this paper is to explore the stock markets integration between the US and the Asian stock markets during different US monetary policy stances. Our empirical findings tend to suggest that stock markets are highly integration during the periods of US’s easy monetary policy stance. Our findings also indicate that when the Fed lowers the FFR, there will be more money invested in the stock markets in the US as well as in the Asian stock markets. When the stock markets are highly integration and pose a puzzle of the benefit of international diversification. In other word, when the global stock markets are highly integrated, it seems like we just put all the eggs in the same basket.

An Investigation of Global and Regional Integration of ASEAN Economic Community Stock Market: Dynamic Risk Decomposition Approach

ABSTRACTThis article investigates the dynamic pattern of stock market relations between the ASEAN Economic Community (AEC) and two major stock markets: China and the United States. A GARCH risk decomposition model is developed to reflect the time-varying market integration. The primary findings of this study are as follows. First, the AEC is more integrated with the regional stock market than with the global stock market. Second, the movement in the AEC stock market is mainly driven by domestic economic situations. Third, external shocks only affect the level of integration of the AEC temporarily. Finally, international investors are able to significantly reduce unsystematic risk by adding an AEC market portfolio into their existing portfolios.

Global financial crisis and cyclical co-movements of Asian financial markets

Purpose– The purpose of this paper is to investigate the cross-spectra of stock, real estate and bond of ten selected Asian economies in the pre- and post-global financial crisis periods to detect whether there is greater cyclical co-movement post-financial crisis, and whether any observed increased co-movement measures the outcomes of contagion or integration.Design/methodology/approach– Co-spectral approach is the proper econometric tool to deliver economic insight for this research.Findings– Results indicate that Asian stock markets, and to a lesser degree, bond and real estate markets are more correlated post-financial crisis. Similarly, Asian financial markets have experienced increased co-movements with the US financial markets post-financial crisis. Moreover, these observed increased co-movements measure the outcomes of contagion in some cases of within-asset and cross-asset classes, as well as for some cross-US-Asian asset factor relationships along the high-frequency components of between two and four weeks. The stock markets are the most contagious, followed by the real estate markets and bond markets.Research limitations/implications– The results provide short-term investors with additional co-movement information at higher frequencies in order to identify short-term fluctuations of different asset classes. The empirical study also underscores the role of Asian real estate in investment portfolios in a mixed real estate, stock and bond context from a frequency domain perspective.Practical implications– The practical implication of this research is that benefits to investors from international diversification may not be as great during the present time compared to previous periods because financial/asset market movements have become more correlated. However, it does not imply the complete absence of diversification benefits. This is because although cyclical correlations increase in the short run, many of the values are still between low and moderate range, indicating that some diversification benefits may still be realized.Originality/value– In advancing the body of knowledge in international financial markets, this research is probably the first study to consider a multi-asset class portfolio context that includes stock, real estate and bond across the ten Asian economies and the USA in a single study. The frequency domain analysis conducted in this paper adds to the understanding of real estate, stock and bond market co-movement, integration and contagion dynamics, as well as the Asian cross-asset factor and US-Asian asset factor relationships in global mixed-investing environment.

What drives stock market integration? An analysis using agribusiness stocks

AbstractThis article explores the drivers of regional stock market integration with a focus on the agribusiness sector across relevant regional trade blocs around the world. We implement panel cointegration models to analyze the stock indices of agribusiness firms in the Southern Common Market (MERCOSUR), European Union (EU), Asia‐Pacific Economic Cooperation (APEC), and North American Free Trade Agreement (NAFTA). Based on the literature on market integration and stock return pricing, we identify nine possible determinants of stock market integration, which we separate into three categories: individual market performance, macroeconomic conditions, and agricultural trade. In our analysis, we account for agriculture‐specific factors to control for possible structural shifts in financial markets regimes by including the two main commodity price bubbles during last 20 years. Our results show that most of the variables included in our categories have been important factors in promoting regional stock market integration. Moreover, integration among regional stock markets was strengthened by the implementation of trade agreements. This effect is stronger in trade blocs with fewer members, such as NAFTA and MERCOSUR, compared with larger and more heterogeneous blocs, such as the EU and APEC.

Long-Run Comovements in East Asian Stock Market Volatility

Two integrated stock markets are generally subjected to common shocks revealing that commonalities in fundamentals drive their underlying return processes. In such a case, volatility series should share a long-run component although their transitory components might temporary diverge. In this paper, we investigate stock market integration in East Asia by analyzing the co-persistent nature of their ex-post observed volatility. Using recent fractional cointegration techniques, we find that volatility of several markets converges in the long run to a common equilibrium. Our results reveal that a global integration process drives the most developed markets of the region, while no evidence of co-persistence appears for emerging markets.

Determinants of Liquidity (Re)Allocation and the Decision to Cross‐List or Cross‐Delist

AbstractThis paper examines the factors influencing the liquidity allocation between local and foreign dual listings. Based on a comprehensive data set covering the period between 2001 and 2011, empirical results suggest that the fraction of trading in the foreign listing decreases with a higher degree of stock market integration measured as the stock price correlation with the world market. Furthermore, the analysis of individual cross‐listings reveals that both an improvement of a country's state of economic development and a better regulatory environment significantly affect the allocation of trading. While an improvement in economic development increases both local and foreign liquidity, a strengthening of regulatory standards leads to a decrease in trading volumes at foreign exchanges. Finally, the liquidity share in the foreign listing is found to decrease over time, a trend that turns out to be driven by developing rather than by developed markets. Copyright © 2016 John Wiley & Sons, Ltd.

Effects of financial turmoil on financial integration and risk premia in emerging markets

Abstract The aim of this article is to analyze how financial crises affect the dynamics of international financial integration and of the risk premia in emerging markets. Accordingly, we estimate a variant of the International Asset Pricing Model developed by Carrieri et al. (2007), allowing for time-varying stock market integration, in which we include the foreign currency risk. Our sample consists of monthly data for 12 emerging stock markets over the period 1988M3–2015M3. We find that while the financial integration of emerging stock markets has registered short-term reversals episodes in countries that have been exposed to national or/and regional financial crises, it has decreased in most of the emerging countries of our sample since the global crisis. Moreover, the upward trend in financial integration has not reduced the local market risk premium component as much as could be expected. However, the recent global crisis has induced a reassessment of the world market risk premium for all emerging countries, highlighting the global nature of the crisis.

Stock return predictability and market integration: The role of global and local information

AbstractThis paper examines the predictability of a range of international stock markets where we allow the presence of both local and global predictive factors. Recent research has argued that US returns have predictive power for international stock returns. We expand this line of research, following work on market integration, to include a more general definition of the global factor, based on principal components analysis. Results identify three global expected returns factors, one related to the major stock markets of the US, UK and Asia and one related to the other markets analysed. The third component is related to dividend growth. A single dominant realised returns factor is also noted. A forecasting exercise comparing the principal components based factors to a US return factor and local market only factors, as well as the historical mean benchmark finds supportive evidence for the former approach. It is hoped that the results from this paper will be informative on three counts. First, to academic...

Stock Market Integration of India with Rest of the World : An Empirical Study

The present study conducted an analysis of the stock market integration of India and a few selected countries of the globe. The study used the Engle-Granger bivariate co-integration test for the analytical purpose of ascertaining the long run equilibrium relation among the countries. The long run relationship of India with some of the selected countries across the globe was analyzed over three different phases. It was observed that cointegration of India with other stock markets was increasingly improving over the years with financial liberalization. The study found that the Indian stock market was more responsive to the other Asian stock markets during the recession phase than in any other sub-sample periods.

English

This paper investigates empirically the linkage between frontier and emerging markets of Asia with the developed markets of Unites States, Japan and Europe over the period of 15 years from January 2000 to December 2014. To deal with heterogeneous panels, we have made use of pooled mean group statistics suggested by Pesaran et al. (2001) for more reliable results. After testing for panel unit root and co-integration, both short and long term relationship were found among the included markets thereby supporting the feedback hypothesis. The direction of relationship is more important from developed to emerging and frontier markets than among the developing-emerging markets. Results suggest that integration is higher among EFA and Japanese markets than the EFA and US markets. These findings are in accordance with the view that level of stock market integration continues to increase. The finding of this paper has important implication for the researchers, practitioners and policy makers. Knowledge about the kind of relationship between EFA and developed markets can help governments of EFA markets to devise various strategies keeping in view their return sensitivity to the developed equity markets. This can help in predicting the return pattern of emerging and frontier markets over the period of short and long run. Furthermore, the relationship among EFA and developed markets enable investors to reap maximum diversification benefits and to minimize risks due to financial contagion or spillover phenomena.

Cross-correlations between volatility, volatility persistence and stock market integration: the case of emergent stock markets

In this paper, we investigate the dynamics of the two pairs of relationship, respectively volatility/market integration and volatility persistence/market integration, in the case of 20 emerging stock markets during the period 1999–2013. Employing the rolling windows approach we find that on most markets the persistent positive trend in volatility and volatility persistence is associated with the same trend in market integration. We use the detrending moving-average cross-correlation coefficients and we find positive cross-correlation that appears particularly in the long term and can only partly be attributed to the global financial crisis. The cross-section analysis shows that the markets which are more integrated display stronger volatility and volatility persistence, especially after 2005, when the level of market integration is higher. Our findings have several important implications for international portfolio management and security valuation.