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Journal of Economic Integration 2021 June;36(2) :185-202.
DOI: https://doi.org/10.11130/jei.2021.36.2.185
Global and Regional Financial Integration in Emerging Asia: Evidence from Stock Markets

Guglielmo Maria Caporale1 Luis A. Gil-Alana2 Kefei You 3

1Brunel University London, UK
2University of Navarra, Spain
3University of Greenwich, UK
Corresponding Author: Guglielmo Maria Caporale ,Email: Guglielmo-Maria.Caporale@brunel.ac.uk
Copyright ©2021 Journal of Economic Integration
ABSTRACT
This paper investigates if financial markets in emerging Asia have become more globally or regionally integrated since the Asian financial crisis in the late 1990s. It employs a price-based measure of integration, namely, stock return differentials, between 10 emerging Asian economies and the United Stated (US) (as an indicator of global integration), as well as Japan and the Asian region (as two alternative indicators of regional integration), to test for mean reversion and draw inferences regarding financial integration. This paper makes a three-fold contribution to the literature. It uses not only aggregate but also industry-level data on stock returns, it examines the impact of the 2008 crisis, and it adopts a more general fractional integration approach. The evidence suggests that in emerging Asia, on both the aggregate and industry (especially for the financial sector) levels, there is more regional than global integration, and that the former became even stronger during the post-2008 crisis period. Furthermore, Japan’s influence has been declining and the Chinese stock market has become more integrated, both regionally and globally.

JEL Classification
F31: Foreign Exchange
C22: Time Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
Keywords: Global and regional integration | Asian stock markets | Fractional integration | Global financial crisis
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