Document Type

Journal Article

Department/ Unit

Department of Economics

Abstract

With the emergence of new capital markets and liberalization of stock markets in recent years, there has been an increase in investors' interest in international diversification. This is so because international diversification allows investors to have a larger basket of foreign securities to choose from as part of their portfolio assets, so as to enhance the reward-to-volatility ratio. This benefit would be limited if national equity markets tend to move together in the long run. This paper thus studies the issue of co-movement between stock markets in major developed countries and those in Asian emerging markets using the concept of cointegration. We find that there is co-movement between some of the developed and emerging markets, but some emerging markets do differ from the developed markets with which they share a long-run equilibrium relationship. Furthermore, it has been observed that there has been increasing interdependence between most of the developed and emerging markets since the 1987 Stock Market Crash. This interdependence intensified after the 1997 Asian Financial Crisis. With this phenomenon of increasing co-movement between developed and emerging stock markets, the benefits of international diversification become limited.

Publication Year

2004

Journal Title

Journal of Applied Mathematics and Decision Sciences

Volume number

8

Issue number

4

Publisher

Hindawi

First Page (page number)

201

Last Page (page number)

218

Referreed

1

DOI

10.1155/S1173912604000136

ISSN (print)

2090-3359

Link to Publisher’s Edition

http://dx.doi.org/10.1155/S1173912604000136

Keywords

Developed market, emerging market, stock index, unit root test, cointegration

Included in

Economics Commons

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