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Trade, Financial Flows and Stock Market Interdependence: Evidence from Asian Markets

Sowmya Dhanaraj (), Arun Kumar Gopalaswamy () and M. Suresh Babu ()
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Arun Kumar Gopalaswamy: IIT Madras, India
M. Suresh Babu: IIT Madras, India

Working Papers from Madras School of Economics,Chennai,India

Abstract: Liberalization and globalization of Newly Industrialized Economies have contributed to increased integration of capital markets. This study tests whether convergence of macroeconomic variables and enhanced bilateral trade and financial flows causes greater interdependence of markets. Daily closing indices and quarterly differentials in interest, inflation, growth rates, exchange rates, trade of goods and services, direct and portfolio investment were used. Results revealed that markets of Asia are not immune to shocks originating in US although co-movements of macroeconomic variables do not help in explaining level of interdependence. Portfolio flows were found to be important than trade flows in explaining market interdependence.

Keywords: Dynamic market interdependence; US and Asian Newly Industrialized Economies (NIEs); Emerging Market Economies (EMEs); FEVD; Trade and Financial Flows (search for similar items in EconPapers)
JEL-codes: F4 G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-sea
Date: 2017-02
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Handle: RePEc:mad:wpaper:2017-158