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Stock market capitalization and financial integration in the Asia Pacific region

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  • Hui-Boon Tan
  • Eng-Tuck Cheah
  • Johnnie E. V. Johnson
  • Ming-Chien Sung
  • Chong-Hin Chuah

Abstract

The Stock Market Capitalization (SMC) of a country, defined as the aggregated market value equity of companies in the respective equity market, is commonly used to measure the widening and deepening of stock market activity. SMC also influences economic growth predictions and public consensus concerning the value of the stock market. However, no previous work has examined the role this variable plays in the process of financial integration. This article provides an argument for the use of SMC as a means of deciding which countries are acting as leaders in creating a fully integrated equity market in the Asia Pacific region. A total of 12 countries in the Asia Pacific region were divided into ‘Emerging Market’ and ‘Advanced Market’ equity blocks. We examine the relative size of the speed of adjustments derived from the error correction models following the Engle--Granger two-step procedure framework and apply the Granger causality test. The results suggest that Hong Kong Special Administrative Region (SAR) possesses the necessary credentials to act as market leader. In fact, Hong Kong SAR appears to be the only contender for market leader of both the ‘Emerging Market’ and ‘Advanced Market’ equity blocks.

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  • Hui-Boon Tan & Eng-Tuck Cheah & Johnnie E. V. Johnson & Ming-Chien Sung & Chong-Hin Chuah, 2012. "Stock market capitalization and financial integration in the Asia Pacific region," Applied Economics, Taylor & Francis Journals, vol. 44(15), pages 1951-1961, May.
    • Handle: RePEc:taf:applec:44:y:2012:i:15:p:1951-1961
    DOI: 10.1080/00036846.2011.556593
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    2. Jonathan A. Batten & Peter Morgan & Peter G. Szilagyi, 2015. "Time Varying Asian Stock Market Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-24.
    3. Andy Wui-Wing Cheng & Nikolai Sheung-Chi Chow & David Kam-Hung Chui & Wing-Keung Wong, 2019. "The Three Musketeers Relationships between Hong Kong, Shanghai and Shenzhen Before and After Shanghai–Hong Kong Stock Connect," Sustainability, MDPI, vol. 11(14), pages 1-20, July.
    4. Tarek Eldomiaty & Marina Apaydin & Mona Yusuf & Mohamed Rashwan, 2023. "How Do Stock Market Development and Competitiveness Affect Equity Risk Premium? Implications from World Economies," IJFS, MDPI, vol. 11(1), pages 1-19, February.
    5. A. Maghyereh & B. Awartani, 2012. "Return and volatility spillovers between Dubai financial market and Abu Dhabi Stock Exchange in the UAE," Applied Financial Economics, Taylor & Francis Journals, vol. 22(10), pages 837-848, May.

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