Stock Market Linkages between the ASEAN Countries, China and the Us: A Fractional Cointegration Approach

39 Pages Posted: 8 Mar 2019

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Kefei You

University of Greenwich

Date Written: 2019

Abstract

This paper examines stock market integration between the ASEAN five and the US and China, respectively, over the period from November 2002 to March 2018. The linkages between both aggregate and financial sector stock indices (both weekly and monthly) are analysed using fractional integration and fractional cointegration methods. Further, recursive cointegration analysis is carried out for the weekly series to study the impact of the 2007-8 global financial crisis and the 2015 China stock market crash on the pattern of stock market co-movement. The main findings are the following. All stock indices exhibit long memory. There is cointegration between the ASEAN five and the US but almost none between the former and China, except between Indonesia and China in the case of the financial sector. The 2007-8 global financial crisis and the 2015 Chinese stock market plunge weakened the linkages between the ASEAN five and both China and the US. The implications of these results for market participants and policy makers are discussed.

Keywords: Asian stock markets, financial integration, fractional integration, fractional cointegration

JEL Classification: C220, C320, G110, G150

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and You, Kefei, Stock Market Linkages between the ASEAN Countries, China and the Us: A Fractional Cointegration Approach (2019). CESifo Working Paper No. 7537, Available at SSRN: https://ssrn.com/abstract=3348726

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Kefei You

University of Greenwich ( email )

30 Park Row
Greenwich
London, SE10 9LS
United Kingdom

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