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
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: Suggested Citation