ABSTRACT
This chapter investigates the extent and structure of price linkages among five Association of Southeast Asian Nations (ASEAN) markets, both in the long-run and in the short-run using cointegration based on the Johansen procedure, Granger-causality, forecast variance decomposition and impulse response analyses. If the ASEAN markets are found to be cointegrated, they can be considered as one whole market set by long-term investors in terms of their portfolio diversification. A unidirectional linkage exists between the Philippines and Singapore, with causality running from the former to the latter. Malaysia is the most influential market while Singapore and Thailand are the markets with most linkages with other markets. There has been a growing economic interdependence among the ASEAN countries starting in the 1980s. The forecast variance decomposition analysis shows the proportion of the changes in the price in a particular equity market arising out of random shocks that can be attributed to random shocks coming from each market.
