Financial Integration and Diversification Among Asean Equity Markets: A Malaysian Perspective

Abstract

This paper analyzes the degree of financial integration and benefits of portfolio diversification among equity markets from Malaysian perspective. In the analysis, the ASEAN equity returns are for exchange rate fluctuations using Ringgit-based exchange rates. We also add the U.S. market analysis, since the U.S. is considered as the world's dominant economy. The results obtained the long-run movements among the ASEAN and U.S. equity markets. Moreover, the interactions between ASEAN markets are mostly contemporaneous. Lastly, in line with existing the U.S. market exerts significant influence on ASEAN markets. We take these results to that the ASEAN markets are highly integrated. Accordingly, we tend to conclude that there to be limited benefits from diversifying among these markets. Additionally, for financial stability region, coordination of policies among the countries seems important. Lastly, policymakers of markets also need to incorporate disturbances in the U.S. market in their information set.