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The dynamic evolution of stock market integration between China, Japan and South Korea. What are the key determinants of regional stock market integration between these countries?

Munzinger, Heinz LU and Liu, Shangjie LU (2013) NEKP02 20131
Department of Economics
Abstract
This paper investigates the dynamic evolution of the conditional correlation between
the stock markets of China, Japan and South Korea by using the DCC-MGARCH
model and investigates the key determinants of regional stock market integration by
using a linear equation framework. The sample period is from January 1995 until
December 2012. We first derive the dynamic conditional correlation between the
pairwise countries’ stock markets and then DCC is regressed on bilateral trade
intensity, bilateral FDI intensity and the absolute difference of rate of inflation and
short-term interest rate. We find that there is weak stock market integration between
the three countries and that Chinese stock markets are very attractive markets to... (More)
This paper investigates the dynamic evolution of the conditional correlation between
the stock markets of China, Japan and South Korea by using the DCC-MGARCH
model and investigates the key determinants of regional stock market integration by
using a linear equation framework. The sample period is from January 1995 until
December 2012. We first derive the dynamic conditional correlation between the
pairwise countries’ stock markets and then DCC is regressed on bilateral trade
intensity, bilateral FDI intensity and the absolute difference of rate of inflation and
short-term interest rate. We find that there is weak stock market integration between
the three countries and that Chinese stock markets are very attractive markets to invest
in for investors in order to benefit from the diversification effect according to asset
allocation theory. The key determinant of stock market integrations for Japan-South
Korea is interest rate; for China-Japan are interest rate and bilateral FDI intensity and
for China-South Korea are bilateral FDI intensity and bilateral trade intensity. (Less)
Please use this url to cite or link to this publication:
author
Munzinger, Heinz LU and Liu, Shangjie LU
supervisor
organization
course
NEKP02 20131
year
type
H2 - Master's Degree (Two Years)
subject
keywords
China, Japan, South Korea, stock market integration, DCC- MGARCH model, bilateral FDI intensity, bilateral trade intensity, interest rate, inflation.
language
English
id
3912026
date added to LUP
2013-07-01 10:37:09
date last changed
2013-07-01 10:37:09
@misc{3912026,
  abstract     = {This paper investigates the dynamic evolution of the conditional correlation between
the stock markets of China, Japan and South Korea by using the DCC-MGARCH
model and investigates the key determinants of regional stock market integration by
using a linear equation framework. The sample period is from January 1995 until
December 2012. We first derive the dynamic conditional correlation between the
pairwise countries’ stock markets and then DCC is regressed on bilateral trade
intensity, bilateral FDI intensity and the absolute difference of rate of inflation and
short-term interest rate. We find that there is weak stock market integration between
the three countries and that Chinese stock markets are very attractive markets to invest
in for investors in order to benefit from the diversification effect according to asset
allocation theory. The key determinant of stock market integrations for Japan-South
Korea is interest rate; for China-Japan are interest rate and bilateral FDI intensity and
for China-South Korea are bilateral FDI intensity and bilateral trade intensity.},
  author       = {Munzinger, Heinz and Liu, Shangjie},
  keyword      = {China,Japan,South Korea,stock market integration,DCC- MGARCH model,bilateral FDI intensity,bilateral trade intensity,interest rate,inflation.},
  language     = {eng},
  note         = {Student Paper},
  title        = {The dynamic evolution of stock market integration between China, Japan and South Korea. What are the key determinants of regional stock market integration between these countries?},
  year         = {2013},
}