Integration of the South and East Asian Stock Markets, Return and Volatility Spillovers from Us, UK Singapore and Hong Kong Using Egarch Model

Abstract

In this paper, we test the hypothesis of stock market integration in six Asian stock markets. The private capital flows has been linked to high stock market performance in these countries. We argue that if there has been co-movement of net equity flows across markets, then, there will also be evidence of stock markets integration. Our findings indicate that net equity capital flows have reduced the market segmentation in South Korea significantly, and linked Indonesia's stock market to regional stock markets after stock market liberalization. Using EGARCH models, we examined whether there is any evidence of return and volatility spillovers from the two developed markets (the US and the UK) as well as two regional markets (Hong Kong and Singapore) to these stock markets. We find strong evidence that both regional and developed markets are important for the South and East Asian stock markets.

Keywords: Time series model, short-term capital movements, portfolio choice investment decisions, international markets, cointegration

JEL Classification: C22, F32, G11, G15, G32