Document Type
Conference Item
Publication Date
11-1-2009
Abstract
This study explores the fundamental driving forces of regional equity market integration. The determinant factors are being categorized into market attribute, economic fundamentals and world information. Our sample consists of 26 equity markets of five regional trading blocs, namely AFTA, CER, EFTA, EU and NAFTA over the period of January 1999 to August 2005. We measure market integration based on pricing errors as proposed by Korajczyk (1996) and Levine and Zervos (1998). Using panel regressions, our results show that regional equity integration is driven internally, where only individual-market volatility and economic fundamentals play a significant role in the process. Intra-bloc trade is found to enhance regional equity market integration, supporting the notion that regional convergence extends beyond the trade sector that is promoted in the trade agreements. We also document regime shifting effects during stock market crises, where regional markets became strongly integrated after a regional crisis, but integration is significantly weakened during a crisis that affected the world markets. Also, the level of regional equity market integration differs across trading blocs, where the blocs with a smaller number of country members are relatively more integrated.
Keywords
Fundamental factors, panel regression, stock market, trading bloc.
Divisions
FacultyofEconomicsAdministration
Event Title
International Conference on Business and Management Research
Event Location
Bali, Indonesia
Event Dates
22-24 Nov 2009
Event Type
conference