Country Funds: A Channel for Emerging Equity Markets Integration
32 Pages Posted: 14 Jun 2001
Date Written: 2001
This paper examines the financial links of a group of Pacific-Basin countries with U.S. and Japan by estimating the multivariate cointegration model in both the autoregressive and moving average forms over the period 1980-1998. The former allows us to examine the long-run relationships of these markets, and the latter the potential drivers of the system. Finally, the recursive analysis helps to identify the evolution of integration of these markets. The results for the early part of the period indicate that the relaxation of foreign ownership restrictions is not sufficient for capital market integration and that other factors must affect the portfolio diversification decision of foreign investors. On the other hand, the results of the more recent period suggest that the relaxation of the restrictions might have strengthened international market interrelations. Furthermore, investors have used alternative financial vehicles, such as Country Funds, to access highly regulated capital markets and strengthen their integration with world markets.
Keywords: Capital market integration, emerging markets, common stochastic trends
JEL Classification: F36, G15
Suggested Citation: Suggested Citation