Asia-Pacific Stock Market Integration: New Evidence by Incorporating Regime Changes

Sei-Wan Kim, Young-Min Kim and Moon-Jung Choi

Emerging Markets Finance and Trade, 2015, vol. 51, issue S4, S68-S88

Abstract: This 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.

Date: 2015
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DOI: 10.1080/1540496X.2015.1026726

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