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Stock market integration: Malaysia and its major trading partners

Zulkefly Abdul Karim and Bakri Abdul Karim

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the stock market integration among Malaysia and its major trading partners by employing Johansen (1988) and Johansen and Juselius (1990) cointegration tests and VECM approach in investigating the dynamic linkages between markets. By using a weekly data, the results indicate that Malaysia stock market is significantly influenced by the stock market development from the major trading partners. The empirical findings are consistent with the view that stronger the bilateral trade ties between two countries, the higher the degree of comovements (Masih and Masih, 1999; Bracker et al., 1999). Since the markets move towards a greater integration, there are no opportunities for international portfolio diversification. In addition, any development in the stock market from major trading partners can not be ignored and should be taken into consideration by the Malaysian government in designing an appropriate policy in the domestic stock market.

Keywords: Cointegration; VECM; major trading partners; stock market integration (search for similar items in EconPapers)
JEL-codes: C22 C32 E44 F36 (search for similar items in EconPapers)
Date: 2008-12, Revised 2009-06
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