Conditional Autocorrelation and Stock Market Integration in the Asia-Pacific

International Finance Review, Volume 7, 2007, Pages 63-94

43 Pages Posted: 12 Nov 2006 Last revised: 3 Oct 2013

See all articles by Suk-Joong Kim

Suk-Joong Kim

The University of Sydney Business School

Michael D. McKenzie

The University of Sydney - Discipline of Finance; University of Cambridge - Cambridge Endowment for Research in Finance (CERF); Financial Research Network (FIRN)

Date Written: January 1, 2008

Abstract

This paper considers the relationship between stock market autocorrelation and i) the presence of international investors which is proxied by the level of capital market integration, and ii) stock market volatility. Drawing from a sample of nine Asia-Pacific stock indices, significant evidence of a relationship between the presence of international investors and the level of stock market autocorrelation is found. This evidence is consistent with the view that international investors are positive feedback traders. Robustness testing of this model suggests that the trading strategy of international investors changed as a result of the Asian currency crisis. The evidence for the role of volatility in explaining autocorrelation is, however, is generally weak and varies across the sample countries.

Keywords: market integration, conditional autocorrelation, Markov models, stock markets

JEL Classification: G15, F36

Suggested Citation

Kim, Suk-Joong and McKenzie, Michael David, Conditional Autocorrelation and Stock Market Integration in the Asia-Pacific (January 1, 2008). International Finance Review, Volume 7, 2007, Pages 63-94, Available at SSRN: https://ssrn.com/abstract=943970 or http://dx.doi.org/10.2139/ssrn.943970

Suk-Joong Kim (Contact Author)

The University of Sydney Business School ( email )

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Michael David McKenzie

The University of Sydney - Discipline of Finance ( email )

Level 2 9 Castlereagh Street
Sydney, NSW 2000
Australia
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+61 2 9351 6461 (Fax)

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

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Cambridge, CB2 1AG
United Kingdom

Financial Research Network (FIRN)

C/- University of Queensland Business School
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Queensland
Australia

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