Return dynamics across the Asian equity markets

The degree of integration among different economies is an important issue in international economics and finance. This article employs daily stock market data for the period 1988 through 1999 to investigate the return dynamics and the extent of the stock market linkages across six newly industrialized countries (NIC’s) of Asia, and documents the role of Japan and the US in this region. Primarily, the study finds that there are significant stock market linkages among the emerging equity markets of Hong Kong, India, Korea, Malaysia, Singapore and Thailand. While dominant relationships do exist, no country is totally insulated from market movements that emanate from other countries in the region. Furthermore, the study documents the presence of temporal instability in the transmission mechanism that coincides with the Asian economic crisis. During the period in which the NIC’s experienced rapidly rising stock valuations, Singapore and the US had dominant causal influences on these Asian markets. However, in the period of financial crisis during the latter part of the 1990s decade, Singapore’s influence is greatly diminished while shocks from other countries, most notably India, play a more dominant role. Several important policy implications are derived from the results.