COMOVEMENT OF ASIA-PACIFIC AND MAJOR STOCK MARKETS

This paper investigates the comovement of Asia-Pacific and major stock markets (a total of seven developed as well as emerging markets) with the cointegation test and error-correction modeling, using daily market index data from January 1988 to April 1992. Similar to previous studies, all markets show the presence of unit roots for non-stationarity (efficient market in the weak sense). Appearing in the system is only one cointegrating vector-one linear combination of the seven market indices constituting a stable interrelationship. However, when the equilibrium relationship is employed, the resultant models exhibit a stronger tendency toward autoregressivity than the error-corrective representation. The results seem to indicate that Asia-Pacific and major stock markets are neither completely integrated nor entirely segmented and thus warrant investors' utilization of an international capital market diversification strategy.