Cointegration relationship and switching volatility levels of stock indices: Empirical evidence from Southeast Asian markets

• Main Authors: Cervantes, Jeremy B., Cheng, Kierby Janine A., Lopena, Carissa L.
• Format: text
• Language: English
• Published: Animo Repository 2014
• Subjects: Stock price indexes > Asia, Southeastern; Stock exchanges > Philippines; Stock exchanges > Asia, Southeastern; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/9037
• Institution: De La Salle University

This study seeks to investigate the relationship between Philippine stock market with the ASEAN 5 member countiries (i.e. Indonesia, Malaysia, Singapore, and Thailand) and with United States. The researchers used quantitative research approaches to explore integration, market efficiency, and volatilities of the indices. Based on the variance ratio test, only the Kuala Lumpur composite index (KLCI) shows weak form efficiency. Furthermore, there is no evidence of any long run relationship between the stock indices, as shown in the Johansen cointegration test. The non-existence of a strong long-run relationship may give potential benefits for investors to diversify their portfolio in the South East Asian region. Moreover all the stock indices Granger cause Philippine Stock Exchange composite index (PSEi) but the PSEI only Granger causes KLCI and the Stock Exchange of Thailand index (SET). For all stock indices, it is found out that the estimated likelihood of being in the low volatility state is the highest, implying that crisis do not occur frequently and stock indices have higher tendencies of having low volatility.