Measuring Financial Markets Integration: Indonesia and East Asia

Lestano Lestano

Economics and Finance in Indonesia, 2011, vol. 59, 19-46

Abstract: This paper examines the pattern of financial integration in three financial markets (foreign exchange, money, and stock markets) in six East Asian markets using daily data over the period of 13 January 1994 to 13 January 2009. We use an asymmetric DCC-MVGARCH model focusing on financial markets relations between Indonesia and the other five East Asian economies. The results show that Singapore plays a dominant relationship with Indonesia in all financial markets, whilst Malaysia and South Korea have only marginal links. The results reveal stronger linkages in foreign exchange markets and stock markets within the region during the Asian financial crisis of 1997-1998 and a negative relationship in the money market. During the sub-prime crisis, all financial markets correlations exhibit a clear deterioration. This evidence is indicative of a strong influence of worldwide financial shocks on the region’s correlations. Overall, we find that the level of integration between Indonesia and the other five East Asian financial markets are not complete but partially segmented.

Keywords: Financial market integration; dynamic conditional correlation; multivariate GARCH; Asian financial crisis; Sub-prime crisis (search for similar items in EconPapers)
JEL-codes: C58 F36 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:201102

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