The long-run relationship among the Southeast Asian equity markets

This 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. Three testing methods used in the paper include; bivariate cointegration test based on residuals; multivariate co-integration test based on vector autoregressive (VAR) model and co-integration tests with the presence of structural breaks. 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. The results reveal evidence for the existence of a number of long-run relationships among several markets, for example there is evidence of a long run relationship between the markets of Thailand and Indonesia and between Philippine and Malaysia; however the study found no evidence of co-integration in the case of Vietnam's equity market and the other markets of South East Asia. The 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.