Are the East Asian markets integrated? Evidence from the ICAPM |
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| Authors: | Bruno Grard Kessara Thanyalakpark Jonathan A Batten |
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| Institution: | a Department of Financial Economics, Norwegian School of Management, BI, Elias Smiths vei 15, P.O. Box 580, N-1302, Sandvika, Norway;b Department of Banking and Finance, Faculty of Commerce and Accountancy, Chulalongkorn University, Bangkok, Thailand;c College of Business Administration, Seoul National University, 151-742 San 56-1, Sillim-Dong, Kwanak-Wu, Seoul, South Korea |
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| Abstract: | We test a conditional international asset pricing model with both world market and domestic risk included as independent pricing factors for five East Asian markets, the US and World markets. We model second moments and risk exposures using a bi-diagonal multivariate GARCH(1,1) process. We document that this novel GARCH specification provides a significantly better fit of the return process than a standard diagonal specification. Although exposure to world market risk carries a significant premium across all markets, we find little support for the hypothesis that exposure to residual country risk is rewarded. However, residual country returns are significantly related to exchange rate changes. Hence, we find surprisingly little evidence of market segmentation in East Asia over the period 1985–1998. |
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| Keywords: | International capital market integration South East Asia GARCH |
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