Abstract:

The objective of this study is to find dynamic integration among the stock markets of the selected ASEAN countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand). Only the five members of ASEAN – Malaysia, Indonesia, Thailand, the Philippines and Singapore – are analyzed in this paper. As these five are the top countries of ASEAN and also the founding members. For this study we take the most current data of monthly closing prices of stock indices for the period of November, 2003 to November, 2013.We applied the Augmented Dickey-Fuller and Philip perron unit-root test to check the stationarity of the series; Correlation matrix was applied for finding association between stock markets; Johansen co-integration; Granger’s causality model; Variance Decomposition Analysis are done to find out the linkages between returns. The result of correlation test shows that there is very significant correlation between the markets of Indonesia, Philippines, Thailand and Malaysia. It is also found that the market of Singapore is not very much correlated with other markets under consideration. The maximum correlation of Singapore is found with Malaysia, this is due to fact that Singapore and Malaysia are geographically and economically close markets. Further, the markets under consideration are not completely isolated from each other, as the result of variance of decomposition shows that no variance is completely accounted by its own innovation. The analysis of Granger Causality test also shows evidence of Bi-directional relationship between the Singapore (STI) and Malaysia (BM). The study reveals that the market are highly correlated and no country is isolated from other country except Singapore which is not very much correlated, so we can say that there is very less diversification opportunities for investors. The contribution of this paper is to provide proof of stock market linkages between the ASEAN countries using recent daily data and modern econometric models. Previous study was done on the same ASEAN countries but that was on the data of Jan 1988 to Dec 2006 to find the Dynamic linkages Pre and Post Crisis Period. To the best of researcher’s knowledge no study was done on the recent data of top five ASEAN countries to find the Dynamic Linkages between them.