Portfolio diversification opportunities across stock markets of Asian tigers, Thailand and India: a vector autoregression approach

Shalini Talwar and Nupur Gupta-Bhattacharya

Global Business and Economics Review, 2017, vol. 19, issue 2, 176-193

Abstract: This paper explores the possibility of the creation of a collective investment vehicle that replicates the equity indices of South Korea, Taiwan, Hong Kong, Singapore, Thailand and India. To begin with, a portfolio of these indices was created using the mean variance theory. Thereafter vector autoregression was applied to examine the dynamic linkages among these markets. Since the trading hours of these markets overlap and there is no a priori for specifying how shock transmits among them, Granger causality test was applied to ascertain which markets are influential to decide the ordering of the VAR approach. The results of variance decomposition show that the impact of these markets on each other is not much and is limited to a range of 5-6%. Impulse response graphs confirm no clear leading markets among the chosen six and the transmission of shock from one market to other disappears in 2-3 days.

Keywords: fund passporting; Granger causality test; portfolio diversification; vector autoregression; VAR; diversification opportunities; stock markets; Asian tigers; Thailand; India; investment portfolios; South Korea; Taiwan; Hong Kong; Singapore; mean variance theory; impulse response graphs; financial passporting. (search for similar items in EconPapers)
Date: 2017
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