TIME VARYING ASIAN STOCK MARKET INTEGRATION

Abstract

We employ an asset pricing framework with varying estimation lengths to show that there has been an increasing degree of integration between Asian and international stock markets, but very little with Japan. This finding is consistent with prior studies and highlights the impact of recent regulatory and economic reform undertaken throughout the region. Our results show that instability in the asset variance structure underpins the observed varying degrees of financial market integration. In particular, modeling integration using shorter estimation periods helps explain the time varying nature of financial market integration and the benefits that may accrue to international and domestic investors.