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Stock market linkages between the ASEAN countries, China and the US: a fractional cointegration approach

Guglielmo Maria Caporale, Luis A. Gil-Alana and Kefei You

No 7537, CESifo Working Paper Series from CESifo Group Munich

Abstract: This paper examines stock market integration between the ASEAN five and the US and China, respectively, over the period from November 2002 to March 2018. The linkages between both aggregate and financial sector stock indices (both weekly and monthly) are analysed using fractional integration and fractional cointegration methods. Further, recursive cointegration analysis is carried out for the weekly series to study the impact of the 2007-8 global financial crisis and the 2015 China stock market crash on the pattern of stock market co-movement. The main findings are the following. All stock indices exhibit long memory. There is cointegration between the ASEAN five and the US but almost none between the former and China, except between Indonesia and China in the case of the financial sector. The 2007-8 global financial crisis and the 2015 Chinese stock market plunge weakened the linkages between the ASEAN five and both China and the US. The implications of these results for market participants and policy makers are discussed.

Keywords: Asian stock markets; financial integration; fractional integration; fractional cointegration (search for similar items in EconPapers)
JEL-codes: C22 C32 G11 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-ets, nep-fmk and nep-sea
Date: 2019
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