A Non-Parametric Examination of Emerging Equity Markets Financial Integration

Ke Yang, Susan Wahab, Bharat Kolluri and Mahmoud Wahab

Chapter 118 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 4043-4074 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Prior studies on financial markets integration use parametric estimators whose underlying assumptions of linearity and normality are, at best, questionable, particularly when using high frequency data. We re-examine the evidence regarding financial integration trends using data for 14 emerging equity markets from Southeast Asia, Latin America, and the Middle East, along with US and Japan. We employ non-parametric estimators of Pukthuanthong and Roll’s (2009) adjusted R2 measure of financial integration. Results from non-parametric estimators are contrasted with results from parametric estimators of adjusted R2 financial integration measure using bi-daily returns for contiguous yearly sub-periods from 1993 to 2016. We find two key results. First, we confirm prior evidence in Pukthuanthong and Roll (2009) that simple correlation (SC) understates financial integration trends compared to parametric adjusted R2. Second, parametric adjusted R2 understates financial integration trends relative to non-parametric adjusted R2. Hence, emerging equity markets may be more financially integrated, and offer fewer diversification benefits to global investors than previously thought. The results underscore the need to exercise caution when drawing inferences regarding financial markets integration using parametric estimators.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811202391_0118 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811202391_0118 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811202391_0118

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().