Is There Any International Diversification Benefits in ASEAN Stock Markets?

This study finds that there is a common force which brings all the five ASEAN stock markets together in the long run by the nonparametric tests. This suggests that shocks from any of these five markets may spillover to the other markets in the same region. The recent Asian financial crisis bears a good testimony to this ‘contagion effect'. Subsequently, there would be no long run gain from international portfolio diversification. Specifically, investors with long run horizons may not benefit from an investment made across the countries in this ASEAN region. One possible explanation for this intra-ASEAN stock markets integration is their strong economic ties, especially intra-ASEAN trade and investment that has indirectly linked their stock indices.

Fundamentals and Exchange Rates: Evidence from ASEAN-5

Utilizing the combined-form of PPP and UIP we estimate the cointegrating relations for ASEAN-5 economies. The study uses quarterly data over the period from 1980 to 2008. The findings reveal that exchange rate, interest rates and prices are cointegrated, implying that there is co-movement among them in the long run. We also find that the hypothesis – PPP augmented by interest rates forms a cointegrating vector – cannot be rejected. This piece of evidence is consistent with the capital enhanced equilibrium exchange rates (CHEERs) approach, which states that the deviations from PPP can be explained by the interest rates differentials. These evidences defiantly would provide the help in formulating exchange rate policies in ASEAN-5 countries.Exchange rate, PPP, UIP, ASEAN-5, Cointegration Analysis

Dynamic financial linkages of Japan and ASEAN economies: Evidence based on real interest parity

This article provides empirical evidence on the dynamic linkages of real interest rates among the ASEAN-5 during the post-liberalisation era (1984-1997).The upshots of our findings are four-fold. Firstly, there were co-movement of ASEAN real rates in the long-run and dynamic causalities in the short-run,which explicitly indicated monetary inter-dependency among the ASEAN countries. Secondly, most of the forecast error variance of real interest rates in own country can be attributed to other ASEAN-4’s innovations (more than 50%), which partly explains the contagion effects during the Asia crisis of 1997/98. Thirdly, the real interest differentials are mean reverting over time, implying that RIP holds between ASEAN-Japan (except Singapore) and ASEAN-US. Forthly, the deviations from RIP have half-lives of around 6 to 11 months, meaning RIP adjustments change rapidly to its parity of equilibrium value. All in all, this finding supports the recent proposal of Currency Union with the Japanese yen taken as common currency

Effects of the 2008 Financial Crisis on developing Asia's Economic Growth

The aim of this paper is to study macro aspect of the virulent impacts of the 2008 financial crisis on Asian developing economies. To do this, we apply the Pedroni panel co-integration technique developed to examine the long-run relationship between economic growth, exports and inward FDI on a sample of selected Asian developing countries over the period 1995-2008. Our main finding is that FDI inflows and exports exert a significant and positive impact on developing Asia's economic growth. The 2008 global financial crisis is, therefore, likely to have a significant effect on developing Asia's economic growth through two main transmission channels - FDI and exports channels.Financial crisis, Exports, FDI, Economic growth, Developing countries.

The relationship between terms-of-trade and trade balance in ASEAN-5

This study examines the relationship between career strategies and career success. The three dimensions that measured career strategies were enhancing promotability, strengthening external contacts, and improving image with superiors. Meanwhile, the dimension that measured career success was subjective career success. Data were gathered through the distribution of questionnaires to employees at a manufacturing organization (n=185). Correlation and regression analysis were used to examine the relationship between career strategies and career success. The results indicated that there were no relationships between overall career strategies and career success. However, in terms of career strategies dimensions, only two were positively correlated with career success, namely, strengthening external contacts and improving image with superiors. The multi-regression results suggest that improving image with superiors was the most important factor in influencing individual’s career success. The findings were discussed and recommendations for future research were also put forward

ASEAN-5+3 AND US STOCK MARKETS INTERDEPENDENCE BEFORE, DURING AND AFTER ASIAN FINANCIAL CRISIS

The issues of international stock markets linkages had been investigated over the time. Since the Asian financial crisis in 1997, many economists are concerned about the relationship between Asian stock markets and others in the world. This paper is conducted to examine the linkages between ASEAN-5+3 namely Malaysia, Singapore, the Philippines, Thailand, Indonesia, China, Japan and Korea and US stock markets. The data consists of weekly stock indices data. The total samples are separated into three subperiods. First period is pre-crisis period spanning from January 1990 to June 1997. Second period is during-crisis period spanning from July 1997 to June 1998. Third period is post-crisis period spanning from July 1998 to May 2007. All the indices applied are expressed in local currencies. The empirical analysis begins with testing the stationarity properties of the data. All the countries are found to be stationary at first difference except for Japan for pre-crisis period. Next, cointegration test is employed to test the long-run stationary relationship among the stock markets. The number of significant cointegrating vector is higher during-crisis compare to other periods whereas the same number of cointegrating vector is found before and after crisis. Granger-causality based on VECM showed that Thailand is exogenous whereby Malaysia is the most endogenous at before and during the crisis. After the crisis, US become dominant compare to the other countries. In conclusion, we found that ASEAN- 5+3 and US stock markets are interdependence during crisis and post-crisis periods and the impact of US stock market is effective in ASEAN-5+3 stock markets only for pre and during-crisis periodsStock markets, Cointegration, Granger-causality, ASEAN

Dynamic financial linkages among the Asia Pacific economies: an empirical assessment of real interest parity condition

Real Interest Parity (RIP) has been considered as the necessary rule to justify the exchange rates regime and the extent of financial integration among countries. This study of RIP condition is particularly important for the Asia Pacific economies that have undergone a series of currency crisis and financial turmoil. We incorporate three major analyses that cover the post liberalization period prior to the Asia financial crisis (1984-1997). First, we investigate the dynamic linkages of real interest rates among ASEAN-5 economies. Second, we assess the behavior of real interest differentials of Japan-ASEAN. Third, we examine the additional transmission channels of real interest rates from the US, Hong Kong, South Korea and Taiwan. Our findings suggest that there have been substantial integration among the ASEAN-5 and the East Asian with both the US and Japanese capital markets. However, the US-dominant hypothesis is more recognized. In addition, most countries are found vulnerable to external shocks and there is less monetary autonomy given that Asian economies have converged speedy to their equilibrium rates following the impulse from the US and the Japanese real interest rates. To great extent, our empirical evidence supports the recent proposal of common currency area as an alternative regime, not only to fight against systemic failures or monetary instability, but also to avoid the macroeconomic trilemma.Real interest parity, mean reversion, half-life, financial integration, common currency

Reform of the International Financial Architecture: An Asian Perspective

The paper attempts to evaluate whether the international financial architecture is adequate for maintaining the financial stability of the East Asian economies by summarizing the lessons learned from the Asian financial crisis of 1997-1998 and the global financial crisis of 2007-2009 and reviewing the progress being made to enhance the effectiveness of the international financial architecture in crisis prevention, management and resolution. The paper finds that the international community had to experience the two crises before seriously starting to work on the reform of the international financial architecture. Facing the global financial crisis, the international community has responded by making the G20 Summit the premier forum for international economic and financial cooperation, creating a potentially more powerful Financial Stability Board, and augmenting the financial resources of the IMF. The paper concludes, however, that the international financial architecture remains inadequate for the needs of many emerging market economies, including in East Asia. International Monetary Fund surveillance—particularly that of systemically important economies (such as the United States, the United Kingdom and the Euro Area)—is ineffective and its governance structure is heavily biased towards Europe and the United States. International liquidity support is insufficient in assisting countries with sound economic and financial management that are hit by externally driven crises. No international agreements exist on external (sovereign) debt restructuring, or on the cross-border resolution of insolvent, internationally active financial firms for fair burden sharing of losses between creditors and debtors, or among different national authorities. The paper emphasizes the importance of a well-functioning regional financial architecture to complement and strengthen the global financial architecture. It offers advice for East Asian authorities to focus on: (i) the establishment of resilient national financial systems, including local-currency bond markets; (ii) integration of national financial markets to facilitate the mobilization of regional savings for regional investment (in infrastructure and small- and medium-sized enterprises); (iii) enhancement of regional liquidity (Chiang Mai Initiative Multilateralization) and economic surveillance mechanisms; and (iv) regional exchange rate policy coordination to achieve sustained economic growth without creating macroeconomic and financial instability.asian financial crisis; global financial crisis; crisis prevention; management and resolution; the imf; the financial stability board; regional financial architecture

"The Extended Panda's Thumb and a New Global Financial Architecture"

An evolutionary theory of international financial institutions is developed and two broad types of possible (evolutionary) equilibrium Global Financial Architectures(GFAs) are identified. The first is called an overarching type, exemplified by the classical gold standard and the defunct Bretton Woods system. The second is called a hybrid form that allows for the existence and coevolution of some Regional Financial Architectures(RFAs) as well. The changing roles of the IMF and national economic policies are examined within these two possible financial architectures under globalization It is found that from an evolutionary perspective, a hybrid form with a reformed IMF and regional cooperation through appropriately designed RFAs can create the best possible institutional and policy environment for financial stability and sustained growth .An evolutionary argument, called "the extended panda's thumb", is advanced to establish the possibility of adapting many existing institutions including the IMF, for creating a hybrid GFA. The tentative steps taken towards regional cooperation in Asia after the financial crisis are discussed to illustrate the opportunities and challenges posed by the need to evolve towards a hybrid GFA.

Do Indian economic activities impact ASEAN-5 stock markets?

This study examines the dynamic linkages of ASEAN-5 with India based on a multivariate framework. DCC-MGARCH model was used to assess the presence of contagion effects and herding behaviour, indicated by the dynamic conditional correlations. The var -Granger causality test was employed to capture the direction of dynamic volatility transmission at the short run. Findings showed that the dynamic correlation of ASEAN-5 stock markets with Indian economy is in par with the U.S. and Japan. The simultaneous sudden spike in Dynamic Conditional Correlation between India and ASEAN-5 and followed by immediate reversal to decreasing Dynamic Conditional Correlation in 2009 indicate a contagion effect and herding behaviour which coincided with European sovereign debt crisis. The immediate reversal back to decreasing Dynamic Conditional Correlation suggests that both countries are hardly contagious by external crisis. In the short run, there is no volatility spillover from Indian economic activities to ASEAN-5 stock markets but there is volatility spillover from stock markets of Indonesia and Singapore to Indian economic activities. Trade policies, economic crises and economic liberalisation play significant roles in shaping the structure of the dynamic volatility correlations between the studied markets. This study reveals that ASEAN-5 has become preferred markets for the diversification of stock portfolio for India in the short run