CO-INTEGRATION AND CAUSALITY ANALYSIS AMONG ASIA PACIFIC STOCMARKETS

Huang, Haiyan (2013) CO-INTEGRATION AND CAUSALITY ANALYSIS AMONG ASIA PACIFIC STOCMARKETS. S2 thesis, UAJY.

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Abstract

This paper examines the level of integration amongst a selection of fifteen Asia-Pacific stock markets between 1 Jan 2000 and 30 October 2012. In doing so, it uses the Augmented Dicky Fuller (ADF), Johansen Multivariate and Bivariate Co-integration models to check for long-term integration; and the Vector Error Correction Model and Engle Granger Causality tests to check short-term relationships amongst the fifteen selected stock markets. With the help of Johansen Multivariate test, this analysis reveals there exist long-term relationship among the major stock markets of the Asia Pacific. Through the use of Bivariate Co-integration analysis it is revealed that the markets of CSE (Sri Lanka), KLSE (Malaysia), KSE (Pakistan), SET (Thailand) and TWII (Taiwan), have no long run integration with the selected stock markets, which means investors can still benefit form long-term investment in these stock markets for their portfolios. The Vector Error Correction and Engle Granger Causality tests uncover that all the selected Asia-Pacific stock markets have strong short-term linkage, with the exceptions of SET (Thailand) and SSE (Shanghai). However, from return and risk, we can deduce that both SET and SSE have high risk, but not high returns, and as a result this paper does not recommend short-term portfolio investments in these markets. The findings of this paper serve as a useful source for investors interested in diversifying their portfolios across various Asia-Pacific stock markets.

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