Stock Market Integration and Portfolio Diversifications in the ASEAN Economic Community (AEC): A Thai Perspective

25 Pages Posted: 16 Feb 2014

See all articles by Yuthana Sethapramote

Yuthana Sethapramote

National Institute of Development Administration, School of Development Economics

Suthawan Prukumpai

Kasetsart University - Department of Accounting, Faculty of Business Administration

Anucha Kaewju

National Institute of Development Administration

Date Written: Novemver 28, 2013

Abstract

This paper has two objectives. First, we examine the dynamic patterns of interdependence among six stock markets in the ASEAN Economic Community (AEC). The Dynamic Conditional Correlation (DCC) – GARCH model is used to generate time-varying cross-country correlations in stock returns. The results exhibit the time-varying behavior in both conditional variances and correlations. In addition, these cross-country conditional correlations are increasing over time in every case. Second, we investigate benefits of international portfolio diversification in ASEAN Exchange from a Thai perspective. The results show that performance of international diversify portfolios could vary over time. However, ability of the DCC-GARCH model to quickly update information on impact of market volatility could provides better information in optimization process. As a result, overall performance of portfolios using conditional correlation generated by the DCC-GARCH model is significantly better than simple portfolio with moving-average correlation. Therefore, financial liberalization process under the AEC framework provided an opportunity for a Thai investor to extract gain from international diversification.

Keywords: International Portfolio Diversification, ASEAN Economic Community, DCC-GARCH

JEL Classification: C22, F15, F32, G11, G15

Suggested Citation

Sethapramote, Yuthana and Prukumpai, Suthawan and Kaewju, Anucha, Stock Market Integration and Portfolio Diversifications in the ASEAN Economic Community (AEC): A Thai Perspective (Novemver 28, 2013). Asian Finance Association (AsianFA) 2014 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2396471 or http://dx.doi.org/10.2139/ssrn.2396471

Yuthana Sethapramote (Contact Author)

National Institute of Development Administration, School of Development Economics ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Suthawan Prukumpai

Kasetsart University - Department of Accounting, Faculty of Business Administration ( email )

Thailand

Anucha Kaewju

National Institute of Development Administration ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

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