Synchronisation of stock market cycles: The importance of emerging and developed markets to ASEAN-5

Abstract

This study analyses the directions and the degree of financial integration of ASEAN-5 with the PRC, India, the U.S. and Japan. A non-parametric approach has been used to study the crosscountry correlations based on Concordance Index (CI) and Rolling Concordance Index (RCI). Monthly stock market indices between January 1991 and June 2010 for all the countries involved were analysed. The CI results indicate higher financial interdependence of ASEAN-5 with the U.S. and Japan compared to the PRC and India. The stock markets RCIs amongst ASEAN-5 with the emerging and developed economies depict a rising financial integration amongst these nations. Financial integration amongst ASEAN-5 stock markets with the PRC has gradually increased but is still relatively lower compared to the financial integration with India, the U.S. and Japan. Thus, the financial portfolio diversification of ASEAN-5 to the PRC is recommended, especially if the financial crisis originates from the ASEAN region.