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Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities

Author

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  • Gilles de Truchis

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

  • Benjamin Keddad

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Abstract

Two integrated financial markets are generally subjected to common shocks revealing that commonalities in fundamentals drive the underlying return processes. In such a case, volatilities should share a long-run component although their transitory components might temporary diverge. Accordingly, we investigate financial integration in East Asian by analyzing the co-persistent nature of their integrated volatilities. Using recent fractional cointegration techniques, we find that volatilities of several markets converge in long-run to a common stochastic equilibrium. Our results reveal that a global integration process drives the most developed markets of the region, while no evidence of co-persistence appears between emerging markets.

Suggested Citation

  • Gilles de Truchis & Benjamin Keddad, 2013. "Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities," AMSE Working Papers 1346, Aix-Marseille School of Economics, France, revised Sep 2013.
    • Handle: RePEc:aim:wpaimx:1346
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    More about this item

    Keywords

    integrated volatility; co-persistence; Fractional cointegration; East Asian stock markets; financial integration.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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