Measuring Asian Stock Market Integration by Using Orthogonal Generalized Autoregressive Conditional Heteroscedasticity

• Harjum Muharam
• Robiyanto Robiyanto
• Irene Pangestuti
• Wisnu Mawardi

Abstract

This study investigates Asian stock market integration during the period of 1999 to 2018. The analysis technique used was Orthogonal Generalized Autoregressive Conditional Heteroscedasticity (OGARCH). OGARCH is a combination of GARCH and Principal Component Analysis (PCA) methods. The benefit of employing OGARCH in a stock market integration study is that it could estimate the degree of stock market integration precisely and how many components are related to it. In order to deepen the analysis, this study also does an analysis based on pre, during and post the GFC. The result shows that not all stock markets studied were integrated. Singapore, Hong Kong, Japan, Taiwan, Thailand, and South Korea stock markets tended to integrate, while the ones in Indonesia, Philippine, and Malaysia did not. This shows that stock markets in Asia were not fully integrated. Stock market integration during the Global Financial Crisis (GFC) period is higher than the pre-GFC period and post-GFC period. Investment managers who have the ability to form international portfolios can diversify existing stocks in Indonesia, Malaysia, and the Philippines even Japan by considering country risk because their stock markets tend to be segmented. Investment managers also need to conduct special studies before investing in Asian stock markets that have proven to be integrated. 
Montenegrin Journal of Economics Vol. 16, No. 1 (2020), 121-137Vol. 16, No. 1 (2020), 121-137Vol. 16, No. 1 (2020), 121-137Vol. 16, No. 1 (2020), 121-137

• DOI:
• 10.14254/1800-5845/2020.16-1.8

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