A study on the nonlinear dynamics of ASEAN financial integration

Thai Ha Le, Long Hai Vo, Taghizadeh-Hesary Farhad

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

Purpose – This study examines the co-integration relationships between Association of Southeast Nations (ASEAN) stock indices as a way to assess the feasibility of policy initiatives to strengthen market integration in ASEAN and identify implications for portfolio investors.

Design/methodology/approach – The authors employ threshold co-integration tests and a non-linear autoregressive distributed lag (NARDL) model to study the asymmetric dynamics of ASEAN equity markets. The study’s data cover the 2009–2022 period for seven member states: Cambodia, Indonesia, Malaysia, the
Philippines, Singapore, Thailand and Vietnam.

Findings – The authors find evidence supporting co-integration relationships; adjustment toward equilibrium is asymmetric in the short run and symmetric in the long run for these countries. While co-movement in ASEAN equity markets seems encouraging for initiatives seeking to foster financial integration in regional
economies, the benefits for international portfolio diversification appear to be neutralized.

Originality/value – The issue of stock market integration is important among policymakers, investors and academics. This study examines the level of stock market integration in ASEAN during the 2009–2022 period. For this purpose, advanced co-integration techniques are applied to different frequencies of data (daily, weekly
and monthly) for comparison and completeness. The empirical analysis of this study is conducted using the Enders and Siklos (2001) co-integration and threshold adjustment procedure. This advanced co-integration technique is superior compared to other co-integration techniques by permitting asymmetry in the adjustment
toward equilibrium.
Original languageEnglish
Pages (from-to)2-14
Number of pages13
JournalJournal of Asian Business and Economic Studies
Volume31
Issue number1
Early online date1 Nov 2022
DOIs
Publication statusPublished - 22 Feb 2024

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