INTERNATIONAL LINKAGE OF ASEAN STOCK PRICES: AN ANALYSIS OF RESPONSE ASYMMETRIES

The paper evaluates response asymmetries in the international linkage of five founding members of ASEAN, namely, Indonesia, Malaysia, the Philippines, Singapore and Thailand. More specifically, we assess whether these markets react differently to market upturns and market downturns of two developed markets – US and Japan. Using simple regression and VAR models, we document the following results. First, in line with many studies on international interdependencies of equity prices, the US market is more dominant than the Japanese market in influencing the ASEAN markets. Second, the evidence strongly suggests significant responses of the ASEAN markets to the US market downturns. However, positive changes in the two advanced market indices do not seem to impact significantly on the ASEAN markets. Third, the pattern of responses based on impulse response functions further substantiate asymmetric responses of these markets to positive and negative shocks in the US markets. Lastly, the evidence for response asymmetry is stronger when only pre-Asian crisis sample is used. Our results, thus, suggest that the benefits of international portfolio diversification may not be forthcoming when they are needed most, that is, during market decline. Moreover, the ASEAN markets seem vulnerable to international financial crisis.