Exchange Rate Flexibility and the Integration of the Securities Market in East Asia
DOI:
https://doi.org/10.6000/1929-7092.2014.03.22Keywords:
Exchange rate flexibility, integration of the securities market, East Asia, dynamic conditional correlationAbstract
This paper discusses the time-varying degree of flexibility in exchange rate regimes and assesses the extent to which securities markets are integrated in East Asia. The dynamic conditional correlation model developed by Engle (2002) is used to analyze the time-varying characteristics of the conditional correlations of exchange rates as well as of bond and equity returns in emerging Asian economies. First, the presented analyses find that the flexibility of Asia's exchange rate regimes increased substantially after the Asian crisis of 1997-98. Second, we show that Asia's equity markets are becoming more globally and regionally integrated, whereas the bond markets in the region are still divided by national borders. These results suggest the existence of more scope for policymakers to promote financial integration in Asia, particularly in its bond markets.References
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http://dx.doi.org/10.1080/09603107.2013.788779
Toyoshima, Y., & Hamori, S. (2013). Asymmetric dynamics in stock market correlations: Evidence from Japan and Singapore. Journal of Asian Economics, 24, 117–123.
http://dx.doi.org/10.1016/j.asieco.2012.08.001
Xu, H., & Hamori, S. (2012). Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008-09 financial crisis. Journal of Asian Economics, 23, 344-352.
http://dx.doi.org/10.1016/j.asieco.2012.04.002
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http://dx.doi.org/10.1080/17446540500054250
Engle, R.F. (2002). Dynamic conditional correlation - a simple class of multivariate GARCH models. Journal of Business & Economic Statistics, 20(3), 339–350.
http://dx.doi.org/10.1198/073500102288618487
Felman, J., Gray, S., Goswami, M., Jobst, A., Pradhan, M., Peiris, S., & Senevirante, D. (2011). ASEAN5 bond market development: where does it stand? Where is it going? IMF Working Paper WP11/137, International Monetary Fund, Washington DC.
Frankel, J., (1999). No Single Currency Regime is Right for All Countries or at All Times, NBER Working Paper No. 7338, National Bureau of Economic Research, Cambridge, MA.
Fung, L.K., Tam, C., & Yu, I. (2008). Assessing the integration of Asia’s equity and bond markets. Bank for International Settlements Paper No. 42, Basel, pp. 1–37.
Furman, J., & Stiglitz, J. E. (1998). Economic crises: Evidence and insights from East Asia. Brookings Papers on Economic Activity, 2, 1–114.
http://dx.doi.org/10.2307/2534693
Goswami, M., & Sharma, S. (2011). The development of local debt markets in Asia: An assessment. In M. Kawai & E. S. Prasad (Eds.), Asian perspectives on financial sector reforms and regulation(pp. 223–252), Tokyo and Washington DC: Asian Development Bank Institute and Brookings Institution Press.
HSBC (2012). Factsheet: Asian local bond index (ALBI), HSBC Global Research, Fixed Income Asia (19 November) <http://www.hsbcnet.com/gbm/ attachments /asian-indices/asian-local- bond-index- factsheet.pdf>.
Kinkyo, T. (2012). De facto exchange rate regimes in post-crisis Asia. Economics Bulletin, 32, 2155–2165.
Ostry, J.D., Ghosh, A. R., Habermeier, K., Laeven, L., Chamon, M., Qureshi, M.S., & Kokenyne, A. (2011). Managing capital inflows: What tools to use? IMF Staff Discussion Note, SDN/11/06, International Monetary Fund, Washington DC.
Pesaran, B., & Pesaran, M.H. (2009).Time series econometrics using Microfit 5.0. Oxford University Press: Oxford.
Pongsaparn, R., & Unteroberdoerster, O. (2011). Financial integration and rebalancing in Asia. IMF Working Paper WP/11/243, International Monetary Fund, Washington DC.
Prasad, E.S., & Rajan, R.G. (2008). A pragmatic approach to capital account liberalization. Journal of Economic Perspectives, 22(3), 149–172.
http://dx.doi.org/10.1257/jep.22.3.149
Savva, C.S., Osborn, D.R., & Gill, L. (2009). Spillovers and correlations between US and major European stock markets: The role of the euro. Applied Financial Economics, 19(19), 1595–1604.
http://dx.doi.org/10.1080/09603100802599563
Schindler, M. (2009). Measuring financial integration: A new data set. IMF Staff Papers, 56, 222–238.
http://dx.doi.org/10.1057/imfsp.2008.28
Tamakoshi, G., & Hamori, S. (2013). An asymmetric DCC analysis of correlations among bank CDS indices. Applied Financial Economics, 23(6), 475–481.
http://dx.doi.org/10.1080/09603107.2012.727973
Toyoshima, Y., Tamakoshi, G., & Hamori, S. (2012). Asymmetric dynamics in correlations of treasury and swap markets: Evidence from the US market. Journal of International Financial Markets, Institutions & Money, 22(2), 381–394.
http://dx.doi.org/10.1016/j.intfin.2011.12.002
Toyoshima, Y., Nakajima, T., and Hamori, S., (2013) Crude oil hedging strategy: New evidence from the data of the financial crisis, Applied Financial Economics, Vol. 23, No. 12, 1033–1041.
http://dx.doi.org/10.1080/09603107.2013.788779
Toyoshima, Y., & Hamori, S. (2013). Asymmetric dynamics in stock market correlations: Evidence from Japan and Singapore. Journal of Asian Economics, 24, 117–123.
http://dx.doi.org/10.1016/j.asieco.2012.08.001
Xu, H., & Hamori, S. (2012). Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008-09 financial crisis. Journal of Asian Economics, 23, 344-352.
http://dx.doi.org/10.1016/j.asieco.2012.04.002
Yang, S-Y. (2005). A DCC analysis of international stock market correlations: The role of Japan on the Asian Four Tigers. Applied Financial Economics Letters, 1(2), 89–93.
http://dx.doi.org/10.1080/17446540500054250
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2014-08-19
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Kinkyo, T., & Hamori, S. (2014). Exchange Rate Flexibility and the Integration of the Securities Market in East Asia. Journal of Reviews on Global Economics, 3, 293–309. https://doi.org/10.6000/1929-7092.2014.03.22
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