ABSTRACT

Studies on Australia's equity market linkages with other countries are relatively few and have mostly been focused on developed markets. This chapter provides new, robust and more comprehensive evidence on the equity market integration between Australia and Association of Southeast Asian Nations (ASEAN). Australia's investment in ASEAN has been relatively insignificant since the mid 1980s. If the ASEAN markets are found to be cointegrated with Australia, then these markets cannot serve as good avenues for portfolio diversification among Australian investors. If there are leads and lags between Australia and the ASEAN markets, then there are arbitrage opportunities that Australian investors can exploit. The Granger-causality, forecast variance decomposition and impulse response analyses reveal that in the short-term, Australia is significantly influenced by Malaysia, Singapore and Thailand. Thus, ASEAN does not provide portfolio diversification benefits to long-term Australian investors but in the short-term, the Philippines and Indonesia do.