Are the East Asian markets integrated? Evidence from the ICAPM

Bruno Gérard*, Kessara Thanyalakpark, Jonathan A. Batten

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

66 Citations (Scopus)

Abstract

We test a conditional international asset pricing model with both world market and domestic risk included as independent pricing factors for five East Asian markets, the US and World markets. We model second moments and risk exposures using a bi-diagonal multivariate GARCH(1,1) process. We document that this novel GARCH specification provides a significantly better fit of the return process than a standard diagonal specification. Although exposure to world market risk carries a significant premium across all markets, we find little support for the hypothesis that exposure to residual country risk is rewarded. However, residual country returns are significantly related to exchange rate changes. Hence, we find surprisingly little evidence of market segmentation in East Asia over the period 1985-1998.

Original languageEnglish
Pages (from-to)585-607
Number of pages23
JournalJournal of Economics and Business
Volume55
Issue number5-6
DOIs
Publication statusPublished - Sep 2003

Keywords

  • GARCH
  • International capital market integration
  • South East Asia

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