Asia-Pacific Stock Market Integration: New Evidence by Incorporating Regime Changes |
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Authors: | Sei-Wan Kim Young-Min Kim Moon-Jung Choi |
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Institution: | 1. Department of Economics, Ewha Womans University, Seoul, Koreaymkim@kofia.or.kr;3. Korea Financial Investment Association, Seoul, Korea;4. Economic Research Institute, Bank of Korea, Seoul, Korea |
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Abstract: | ABSTRACTThis work provides new evidence of Asia-Pacific stock market integration by incorporating the regime changes of each stock market through the smooth transition autoregressive (STAR) model. According to empirical results, most Asia-Pacific stock market returns follow STAR dynamics to a significant degree with more rapid and frequent regime changes of a shorter nature compared with G7 markets. A series of STAR-based Granger causality tests reveal evidence of stronger equity market integration compared with linear Granger causality tests. We also find that Asia-Pacific stock markets are integrated in different levels. Finally, we provide evidence that in the early twenty-first century the influence of China and the United States on Asia-Pacific stock markets has been maintained while that of Japan has been weakened. |
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Keywords: | Asian-Pacific stock market integration regime change smooth transition autoregressive model |
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