The Impact of Increasing Stock Market Integration on Expected Gains from International Portfolio Diversification: Evidence from a Multivariate Approach with Time Varying Risk

We employ an asset pricing framework with varying estimation lengths to show that there has been an increasing degree of integration between Asian and international stock markets, but very little with Japan. This finding is consistent with prior studies and highlights the impact of recent regulatory and economic reform undertaken throughout the region. Our results show that instability in the asset variance structure underpins the observed varying degrees of financial market integration. In particular, modeling integration using shorter estimation periods helps explain the time varying nature of financial market integration and the benefits that may accrue to international and domestic investors.

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Cross-Country Stock Market Integration and Portfolio Diversification Opportunities Evidence from Developed, Emerging and Frontier Countries

Studies of Applied Economics ◽

10.25115/eea.v39i1.3102 ◽

2020 ◽

Vol 39 (1) ◽

Author(s):

Sultan Salahuddin ◽

Muhammad Kashif ◽

Mobeen Ur Rehman

Keyword(s):

Stock Market ◽

South Korea ◽

Market Integration ◽

Portfolio Diversification ◽

Stock Market Integration ◽

Country Level ◽

Low Correlation ◽

Long Run ◽

Short Run ◽

Cross Country

This study examines the stock market integration in cross-regional countries of developed, emerging, and frontier markets based on low correlation. The objective of the study is to identify the diversification opportunities and link between correlation and integration among country-level stocks. For this purpose, we select 62 countries from all three classifications of developed, emerging, and Frontier Markets. We constructed portfolios by selecting least 5 correlated countries denoted with Pjt in which each country has a correlation of less than .10 with base country Pit. Thirty-two countries fulfill the criteria of low correlation; 7, 13 and 12 from developed, emerging and frontier markets, respectively. Panel co-integration and VECM are applied to test the stock market integration and long & short-run linkages between country-level portfolios designed based on low correlation criteria. After conditioning for oil price movements, S&P 500 and exchange rate, we found Canada, France and Germany from developed category; Chile, Colombia, Greece, South Korea, Malaysia, Pakistan and Philippine from emerging category; and Bahrain, Jordan, Kuwait, Morocco, and Sri Lanka from frontier category have long-run diversification opportunities. Countries including; Canada and Italy from developed category; Argentina, Chile, China, Colombia, India, Indonesia, South Korea, Mexico and the Philippine from emerging category; and Bahrain, Kuwait, Morocco, Nigeria, and Tunisia from emerging category have short-run diversification opportunities.

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Measuring Co-Movements and Linkages between Nigeria and the UAE Stock Exchanges: Is there Opportunity for Portfolio Building?

Journal of Advanced Research in Economics and Administrative Sciences ◽

10.47631/jareas.v1i2.124 ◽

2020 ◽

Vol 1 (2) ◽

pp. 106-122

Author(s):

Shafiu Abdullahi

Keyword(s):

Stock Market ◽

Financial Market ◽

Market Integration ◽

Stock Exchange ◽

Portfolio Diversification ◽

Empirical Literature ◽

Stock Exchanges ◽

Financial Contagion ◽

Stock Market Integration ◽

Short Run

Purpose: The main objective of this study is to examine the relationship between Nigerian Stock Exchange and Dubai stock exchange with the aim of finding out the direction of movements between their respective indices. Approach/Methodology/Design: The methodology adopted for the analysis is ARDL cointegration model and the Generalized Method of Moment (GMM). This is because of their known efficiency in detecting patterns between variables. Findings: The result of the short-run analysis using GMM shows that there is existence of short-run causality between the Dubai financial market (DFM) and the Nigerian stock exchange (NSE). Thus, for investors looking for short- run arbitrage opportunity between the markets, they shall look elsewhere. But, the result of bound testing has shown lack of cointegration between the two markets. This is a sign of existence of opportunities for portfolio diversification between Nigeria stock exchange and Dubai financial market, since the two markets are not cointegrated in the long-run. Practical Implications: The study helps bridge the empirical literature gap in stock market integration and portfolio diversification with reference to the Nigeria and UAE. It will, therefore, guide local and foreign investors with interest in Nigeria and UAE Stock Exchanges. It will also guide Nigerian and UAE policy makers to understand the market better, especially as it concerns financial contagion. Originality/value: This study provides further evidence on stock market integration in emerging markets. New researches shall adopt different methodology such as use of volatility tracking models to measure volatility linkage between the markets.

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