Permanent and Transitory Driving Forces in the Asian-Pacific Stock Markets

28 Pages Posted: 4 Oct 2001

See all articles by Ali F. Darrat

Ali F. Darrat

Louisiana Tech University - College of Business

Maosen Zhong

University of Queensland - Business School

Multiple version iconThere are 2 versions of this paper

Abstract

This paper uses weekly data from November 1987 through May 1999 to examine whether U.S. or Japan stock market (or both ) is the main driving force behind major movements in eleven emerging Asian-Pacific stock markets. We find a robust cointegrating relation linking each of the emerging market with the two matured markets of the U.S. and Japan. The results also show that the U.S., rather than Japan, is the main permanent force driving the equilibrium relations across all Asian-Pacific markets. In contrast, the effect of the Japanese market on the Asian-Pacific region is only transitory. Therefore, strategic asset portfolios in the Asian-Pacific region should include Japanese stocks to diversify any country specific risks. As to U.S. investors, the persistent influence of the U.S. market effectively limits long-run diversification gains from Asian-Pacific stocks. diversification

Keywords: Asian-Pacific stock markets, the U.S. and Japan, cointegration, driving forces, international asset

JEL Classification: G15, C32, F21

Suggested Citation

Darrat, Ali F. and Zhong, Maosen, Permanent and Transitory Driving Forces in the Asian-Pacific Stock Markets. Available at SSRN: https://ssrn.com/abstract=285717 or http://dx.doi.org/10.2139/ssrn.285717

Ali F. Darrat

Louisiana Tech University - College of Business ( email )

Department of Economics & Finance
P.O. Box 10318
Ruston, LA 71272
United States
318-257-3874 (Phone)
318-257-4253 (Fax)

Maosen Zhong (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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