Stock Market Integration and Financial Crisis in Asian Economies: An Empirical Analysis

Authors

Dhananjay Sahu

Abstract

The present paper conducts an extensive and comprehensive study for understanding the extent of stock market interdependence among three emerging Asian economies and the changes in the extent of interdependence overtime with specific reference to the Global Financial Crisis 2008-09. The data set span for a period of eleven years from April 2007 to March 2018. The long-run relationship has been tested for the three periods [pre-crisis, crisis, and post-crisis]. For this purpose, Johansen’s cointegration test, VECM, Impulse response function and variance decomposition has been applied. The results obtained in the study suggest that all the markets analyzed reacted differently in different period. In the pre-crisis period, the Taiwan Stock Exchange (TWII) and South Korea Stock Exchange (KS11) were found to be interdependent with an adjustment speed of 5.74% respectively towards the long run equilibrium. However, the study does not find any long run relationship of NIFTY with TWII and KS11. During the crisis period, the cointegration test applied pair-wise on the markets revealed that only National Stock Exchange (NIFTY) and Taiwan Stock Exchange (TWII) exhibit a long run relationship with 12.69 % adjustment speed in case of any deviations from the long run equilibrium. All the other markets lack to show any evidence of such long run relationship with each other. Further, in the aftermath of crisis the markets behaved differently thus changing the long run relationship among markets. No evidence of any long run interlinkages was found among the markets in the post crisis period.

Keywords

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Stock Market Integration and Financial Crisis in Asian Economies: An Empirical Analysis. Dhananjay Sahu. 2020. IJIRCT, Volume 6, Issue 1. Pages 1-10. https://www.ijirct.org/viewPaper.php?paperId=2309010