The Effect of Level of Intra Industry Competition and the Intensity of Role of Global Investors Toward Degree of Capital Market Integration in ASEAN

Abstract

By the integration of the ASEAN capital markets, global investors need to diversify among industries in the ASEAN capital markets with the consideration that there is no relevancy regarding to diversify among countries. One way to measure the degree of integration in addition to cointegration techniques are already widely used is the correlation. The use of correlation is done not only to show different degree of integration but also intended to identify the determinant of market integration which starting from theory of stock market interdependence as proposed by Pretorius (2002).

The first finding of this study is the different degree of integration at the country and industry levels in the ASEAN which reflects the difference in the benefits of international diversification among industries and countries as well as supporting the concept of time-varying integration of Bekaert and Harvey (1995). The second finding as the important result for this study is the effectiveness of the entropy index of Ruefli (1990) as a proxy for the level of intra industry competition in Singapore. The implication is global investors need to consider the dynamics of competition among firms within the industry in Singapore as the industry risk for conducting their international diversification strategy. The latest finding is Malaysian bourse still protective so that global investors need to be more active penetration by networking through the local brokerages in accordance to advice of Dvorak (2005).

Keywords: Market integration, Level of intra industry competition, Market openness level, Inter industry diversification, Entropy index of Ruefli (1990)

JEL Classification: E44, F3, F36, G15