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Journal of Economic Integration 2014 September;29(3) :496-519.
DOI: https://doi.org/10.11130/jei.2014.29.3.496
A Study of Financial Integration and Optimal Diversification Strategy in ASEAN Equity Markets
Peter Hwang and 
Romora Edward Sitorus 
Department of International Business, National Taiwan University, Taipei, Taiwan
Sampoerna School of Business, Universitas Siswa Bangsa Internasional, Jakarta, Indonesia
Corresponding Author: Peter Hwang ,Tel: +886 233664991, Fax: +886 223627203, Email: fbahjh@hotmail.com
Copyright ©2014 Journal of Economic Integration
ABSTRACT
This paper examines the country and industry effects on the cross-sectional variance of firms’ equity return in the Association of Southeast Asian Nations (ASEAN) member countries. Using the model developed by Heston and Rouwenhorst (1994), this article covers five ASEAN countries and ten industries. We find that pure country effects are, on average, more important than pure industry effects in explaining equity return variation of ASEAN firms. In terms of portfolio diversification strategies in ASEAN, our results show that country diversification is a more effective strategy for risk management than industry diversification. We also discuss the impacts of subprime mortgage crisis on ASEAN countries and industries.

JEL Classification
F36: Financial Aspects of Economic Integration
G11: Portfolio Choice; Investment Decisions
G15: International Financial Markets
Keywords: Financial Integration | Industrial Structure | Emerging Markets | Diversification
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