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Financial Integration in Emerging Market Economies

Gurnain Pasricha ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the de-facto integration in some Emerging Market Economies based on behavior of deviations from Covered Interest Parities in the last 10 years. It tests for modified market efficiency conditions in the presence of real world frictions and arrives at a single measure of de-facto integration for some Emerging Market Economies in the post-globalization era. An Asymmetric Self Exciting Threshold Autoregressive model (SETAR) is used to estimate bands of speculative inaction. Market efficiency requires the thresholds to be no wider than the transaction costs and the deviations to follow a stationary process outside the chosen bands. The analysis reveals a much more efficient financial market than has been allowed for in previous studies. The estimates of thresholds for emerging markets follow the pattern expected, given information on de-jure restrictions. Based on the estimated model, the paper constructs an index of de-facto integration and we find that Phillipines and India are the highest ranked amongst emerging markets in terms of their financial integration, and that Malaysia and Thailand occupy the lowest spot.

Keywords: Covered Interest Parity; Financial Integration; Integration Index; TAR (search for similar items in EconPapers)
JEL-codes: F36 F30 F3 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-sea
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https://mpra.ub.uni-muenchen.de/5278/1/MPRA_paper_5278.pdf original version (application/pdf)

Related works:
Working Paper: Financial Integration in Emerging Market Economies (2008) Downloads
Working Paper: Financial integration in emerging market economies (2008) Downloads
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