Stock market linkages between the ASEAN countries, China and the US: a fractional cointegration approach

This paper examines stock market integration between the ASEAN five and the US and China, respectively, over the period from November 2002 to March 2018. The linkages between both aggregate and financial sector stock indices (both weekly and monthly) are analysed using fractional integration and fractional cointegration methods. Further, recursive cointegration analysis is carried out for the weekly series to study the impact of the 2007-8 global financial crisis and the 2015 China stock market crash on the pattern of stock market co-movement. The main findings are the following. All stock indices exhibit long memory. There is cointegration between the ASEAN five and the US but almost none between the former and China, except between Indonesia and China in the case of the financial sector. The 2007-8 global financial crisis and the 2015 Chinese stock market plunge weakened the linkages between the ASEAN five and both China and the US. The implications of these results for market participants and policy makers are discussed.