Time Varying Asian Stock Market Integration

Abstract

We employ an asset pricing framework to show that over the last twenty years there has been an increasing degree of integration between Asian and international stock markets, but very little with Japan. This finding is generally consistent with prior studies and highlights the impact of regulatory and economic reform undertaken throughout the region in recent years. Our results also show that instability in the asset variance structure underpins the observed varying degrees of financial market integration. In particular, modeling integration using shorter estimation periods helps explain the time varying nature of financial market integration and the benefits that may accrue to international and domestic investors.

Keywords: Asia-Pacific, Financial Market Integration, International Asset Pricing, Systematic Risk, Market Risk

JEL Classification: F15, F2, F36, G10, G15