ASSESSING THE COINTEGRATION AMONG MAJOR EMERGING ASIAN STOCK MARKETS: A VECTOR ERROR CORRECTION MODEL APPROACH
ASSESSING THE COINTEGRATION AMONG MAJOR EMERGING ASIAN STOCK MARKETS: A VECTOR ERROR CORRECTION MODEL APPROACH

Summary/Abstract: The impact of globalization made it more complex for the investors to make investment decisions. The portfolio creation and management became more challenging. The financial crisis has revealed the influence of financial contagion in stock markets across the globe and has gained attention of researchers and academia. The literature identifies the cointegration among the markets as the most significant reason for the spread of contagion in the markets. This scenario increases the risk of investing in global markets and results in a steep fall in the benefits gained by the investor attributing to portfolio diversification. This study examines the presence of cointegrating relationships among four major emerging Asian markets. A Johansen cointegration test is applied and a vector error correction model is estimated on the indices values of 4 markets vis. China, India, Indonesia and South Korea. Johansen cointegration test confirms the presence of a significant cointegrating vector among the markets. Estimates of vector error correction model establish a long-run association among China, India and South Korea. The study also identifies that the Chinese market is a profitable choice for international investors in their portfolio diversification strategies over the short-run.

• Details
• Contents