Capital Market Integration of ASEAN6 Industries

Abstract

The integration and/or segmentation of the ASEAN6 capital markets can provide guidance for investment diversification. Thus, this paper attempts to investigate the integration of the ASEAN6 industries with their international benchmarks using various regression models. Ten industries classified by ICB are considered from 3/1/2000 to 31/1/2014.

Using a VAR model, it investigates the direct and indirect impacts from international industries to the corresponding ASEAN6 local industries and the impulse responses of the local industries to international shocks. The disadvantage of multivariate single-equation regression and VAR model is that they cannot separate the influence of returns, conditional return volatility and return shocks on cross return and cross conditional return volatility. To overcome this shortcoming, this paper employs a bivariate VARMA-MGARCH-asymmetric BEKK model to examine the integration of ASEAN6 industries.

This paper finds that most industries of Vietnam are segmented, implying the benefit of intra-industry investment for investors having assets in the US or Asian region. The other five ASEAN countries, however, are characterised by varying industry integration/segmentation. Some industries are integrated or segmented with international benchmark industries in the US and Asia but some are segmented from those of the US and integrated with those of the Asia, or vice versa.

Keywords: ASEAN countries; Capital market integration; Industry integration; Portfolio selection; Investment Implications

JEL Classification: G11; G15; F36