Response Asymmetries in the Linkages of Asean-5 Equity Prices

Abstract

The paper extends the analysis of the linkage among ASEAN-5 markets to allow for possible asymmetric responses of an ASEAN market to innovations in other ASEAN markets and the US market. Our results suggest that, while there i lack of cointegration or long run co-movements among the ASEAN and US markets, there seems to be substantial short run interactions among them. Central to our analysis, there is some evidence for both ‘magnitude and pattern asymmetries in the movements of ASEAN markets. We document evidence for stronger reaction to market downturns than to market upturns, which is more apparent in the less developed markets of Indonesia and the Philippines. These results have the following implications: first, it pays to diversify in the ASEAN markets for those. who have long term investment horizons. ‘Second, the benefits of international portfolio diversification in these markets in the short run ae, however, greatly limited. Indeed, these. ‘benefits may not be forthcoming when thy are mostly needed, i. during market downturns. Lastly. international market downturns tend to be more contagious compared to market upturns,