Study On Stock Market Integration In ASEAN-5

With increasingly closer interaction of global finance and harsh experience from Asian financial crisis and ongoing global financial tsunami, the Association of South-East Asian Nations (ASEAN) have come to realize the importance of regional cooperation as an effective cure for economic difficulties. ASEAN is eagerly seeking more coordination and resolutions between their stock markets, in an effort to enhance regional stock market integration and their ability to combat economic downturn.This thesis focuses on five stock markets of ASEAN-5, namely Indonesia, Malaysia, Philippine, Singapore and Thailand. Status quo of all five stock markets and their integration incentives are stated in this paper and then empirical analyses using econometric techniques like Granger causality test, cointegration test, VAR Model, VEC Model and Impulse Response Function, explore more about to what degree the five markets are integrated, and obstacles and opportunities they face. Finally policy recommendations are provided concerning how to enhance stock market cooperation and integration of the ASEAN stock markets. The main findings are as follows:1. Using monthly data from December 1994 to January 2009, we come up with the conclusion that 1997 Asian financial crisis was a turning point for ASEAN stock markets when ASEAN stock markets began turning to integration. Using data from January 1999 to January 2009, cointegration relationship with one cointegration vector was found for the 5 stock markets, and VEC model shows that stock markets between Singapore, Malaysia and Thailand exhibit significant long-term relationships. Impulse Response analyses depict a long-run relationship between the 5 markets.2. Qualitative studies indicate that cointergation relationship between the considered countries are not strong enough and there are difficulties and opportunities. Further development of their cointegration relationship calls for wide cooperation and coordination within the ASEAN, combined with efforts from both development countries and international financial institutions.