Time Series Analysis

In this paper I intend to examine the co-movement of stock markets in East Asia during a relatively long time, from November 1, 1991 to January 1, 2008, thereby considering potential changes in stock market interdependence over time. I focus on the effects of the 1997-1998 Asian financial crises. Major economic events can influence the relationship among stock markets. Previous research was done by Granger and Morgenstern to illustrate that the existing linkages tend to intensify in the case of a crisis due to contagion effect. However they did not research on whether crises have a long-lasting effect on stock market interdependence. In the previous research on 1987 stock market crash, Chan, Gup and Pan concluded that the stock market crash did not promote any enduring integration among their sample countries. Therefore, I will study the effects of the Asian financial crisis on the co-movement of stock markets in Mainland China, Hong Kong, Singapore, Japan and India. I would also examine the influence of the Asian emerging markets on the individual markets in Mainland China, Hong Kong, Singapore, Japan and India. In this way I could know whether the five sample markets are sensitive to changes in Asia.

I would examine the co-movement of stock markets in a multivariate VAR framework instead of studying their bivariate relationship. I also implemented co-integration tests to examine the long-run equilibrium relationship among the stock markets in my sample. To figure out their short-run linkages, I would use impulse response analysis. To study the influence of Asian emerging market on the five stock markets in my sample, I would conduct the impulse response analysis.

As different sample periods could result in contradictory findings, particularly when a crisis rises, I consider a long enough time frame, from November 1, 1991 to January 1, 2008, and split the sample into three subsamples to capture possible time-variant stock market integration in east Asia...