Dynamics of integration in East Asian equity markets

Tadaaki Komatsubara; Tatsuyoshi Okimoto; Ken ichi Tatsumi

doi:10.1016/j.jjie.2017.07.002

Dynamics of integration in East Asian equity markets

Tadaaki Komatsubara, Tatsuyoshi Okimoto, Ken ichi Tatsumi

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

This paper investigates the dynamics of integration in East Asian equity markets between 1995 and 2013 using a smooth-transition correlation GARCH model. Our results show that East Asian equity market integration among China and other countries has increased significantly since 2007, whereas among other East Asian equity markets excluding China increased significantly in an earlier period from 1999 to 2001. Additionally, we find that increasing integration has been mostly caused by correlation increases in after-trading hours. These results suggest that stock prices in East Asia are sensitive to Europe and US stocks because Europe and US investors are actively investing in East Asian stocks. Indeed, the periods reflect striking increases in integration that correspond approximately to the start of intensive Europe and US investment activity in East Asian stock markets.

Original language	English
Pages (from-to)	37-50
Number of pages	14
Journal	Journal of The Japanese and International Economies
Volume	45
DOIs	https://doi.org/10.1016/j.jjie.2017.07.002
Publication status	Published - 2017 Sept
Externally published	Yes

Keywords

Diversification effect
Financial integration
Smooth transition model
Stock market linkages

ASJC Scopus subject areas

Finance
Economics and Econometrics
Political Science and International Relations

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10.1016/j.jjie.2017.07.002

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title = "Dynamics of integration in East Asian equity markets",

abstract = "This paper investigates the dynamics of integration in East Asian equity markets between 1995 and 2013 using a smooth-transition correlation GARCH model. Our results show that East Asian equity market integration among China and other countries has increased significantly since 2007, whereas among other East Asian equity markets excluding China increased significantly in an earlier period from 1999 to 2001. Additionally, we find that increasing integration has been mostly caused by correlation increases in after-trading hours. These results suggest that stock prices in East Asia are sensitive to Europe and US stocks because Europe and US investors are actively investing in East Asian stocks. Indeed, the periods reflect striking increases in integration that correspond approximately to the start of intensive Europe and US investment activity in East Asian stock markets.",

keywords = "Diversification effect, Financial integration, Smooth transition model, Stock market linkages",

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AU - Komatsubara, Tadaaki

AU - Okimoto, Tatsuyoshi

AU - Tatsumi, Ken ichi

PY - 2017/9

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N2 - This paper investigates the dynamics of integration in East Asian equity markets between 1995 and 2013 using a smooth-transition correlation GARCH model. Our results show that East Asian equity market integration among China and other countries has increased significantly since 2007, whereas among other East Asian equity markets excluding China increased significantly in an earlier period from 1999 to 2001. Additionally, we find that increasing integration has been mostly caused by correlation increases in after-trading hours. These results suggest that stock prices in East Asia are sensitive to Europe and US stocks because Europe and US investors are actively investing in East Asian stocks. Indeed, the periods reflect striking increases in integration that correspond approximately to the start of intensive Europe and US investment activity in East Asian stock markets.

AB - This paper investigates the dynamics of integration in East Asian equity markets between 1995 and 2013 using a smooth-transition correlation GARCH model. Our results show that East Asian equity market integration among China and other countries has increased significantly since 2007, whereas among other East Asian equity markets excluding China increased significantly in an earlier period from 1999 to 2001. Additionally, we find that increasing integration has been mostly caused by correlation increases in after-trading hours. These results suggest that stock prices in East Asia are sensitive to Europe and US stocks because Europe and US investors are actively investing in East Asian stocks. Indeed, the periods reflect striking increases in integration that correspond approximately to the start of intensive Europe and US investment activity in East Asian stock markets.

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KW - Financial integration

KW - Smooth transition model

KW - Stock market linkages

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Dynamics of integration in East Asian equity markets

Abstract

Keywords

ASJC Scopus subject areas

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