The impacts of the global financial crisis on Southeast Asian equity markets integration

An interesting question which this paper attempts to investigate is whether the relationships between Asian equity markets have changed as a result of the Global Financial Crisis (GFC). The paper investigates the long-run relationship among six equity markets in the Southeast Asian region, namely Thailand, Malaysia, Singapore, Philippines, Indonesia and Vietnam using daily market indices collected over the period 2006 - 2010. The objective of the research was to uncover the latest empirical evidence from a study of the long run relationships amongst the equity markets of South East Asia with a view to understanding the probable impact of the recent Global Financial Crisis on those markets. Three testing methods were used namely; bivariate cointegration test based on residuals, multivariate cointegration test based on vector autoregressive (VAR) model and cointegration tests with the presence of structural breaks. The results reveal evidence that a number of bi-directional long-run relationships exists among several of these markets, including the markets of Thailand and Indonesia; Thailand and Singapore and Philippine and Malaysia in both pair-wise cointegration tests with and without the presence of a structural break. The study found evidence of mono-cointegrations in the case of Vietnam's equity market and the other markets of South East Asia. These results have implications for investors in these markets in terms of diversification of risks and returns where shocks to any one market may or may not have a contagious effect on other markets in the region.