DOES U.S. SUB-PRIME CRISIS IMPEDE ASIAN EQUITY INDICES INTEGRATION STRENGTHENS? AN ARDL-BOUNDS TESTING APPROACH.

Promotion of regional stock market integration is critically meaningful for regional development. Since last couple of decades stock markets Integration has been widely seen as the most exciting and promising area for investment, especially because they are expected to generate high returns and to offer good portfolio diversification opportunities. Consequently, these markets have known a considerable expansion. For this motive, we examine the integration of principal Asian equity markets namely; Taiwan, Sri Lanka, Korea, China, Japan, Malaysia, Hong Kong, India, Singapore and Pakistan employing ARDL bounds testing approach to co-integration and VECM. The study employed monthly stock indices data covering from July 1997 to June 2015. For this purpose list of following indices are used to represent the markets: TSEC weighted index for Taiwan, CSE for Sri Lanka, KOSPI composite index for Korea, SSE composite index for China, Nikkei 225 index for Japan, FTSE 100 index for Malaysia, Hang Seng index for Hong Kong, BSE Sensex for India, Strait Time Index for Singapore and KSE 100 index for Pakistan. We investigate null hypothesis (H0) of no long run relationship as well the direction of causality in case of rejection of (H0). Study explore the Asian markets are integrated during sample period of pre- and post-2008 U.S sub-prime crisis which is in line with prior literature, to extent, this study further explore more attractive results of integration among sample indices and concludes that adjustment of (ECT-1) improved expressively in post-crisis period compare to pre-crisis period over sample years. This implies that the strength of long-run relationship among Asian markets increase over the post-crisis period. The overall comparison results of sample Asian stock indices pre- and post U.S sub-prime crisis conclude that, the integration of sample indices are more strengthen in Asian markets after the global financial crisis. It would be interesting to further explore the factors leading for market integration like, trade flow of the countries, foreign institutional/private portfolio investments, previous equity returns and more precisely put on structural breaks to measure the strength of US crisis period. In addition, it would be more strengthen to make sound policy coordination among Asian region to overcome the influence of economic instabilities and financial fluctuations. [ABSTRACT FROM AUTHOR]