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Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection

Author

Listed:
  • Aldrin Herwany

    (Research Division, Laboratory of Management FE UNPAD)

  • Erie Febrian

    (Finance & Risk Management Study Group (FRMSG) FE UNPAD)

Abstract

Both practitioners and academicians demand a linkage model across financial markets, particularly among regional capital markets, for both risk management and portfolio selection purposes. Researchers frequently use co-integration and causality analysis in investigating the dependence or co-movement of three or more stock markets in different countries. However, they conducted the causality in mean tests but not the causality in variance tests. This study assesses the co-integration and causal relations among seven developed Asian markets, i.e Tokyo, Hongkong, Korea, Taiwan, Shanghai, Singapore, and Kuala Lumpur stock exchanges, using more frequent time series data. It employs the recently developed techniques for investigating unit roots, co-integration, time-varying volatility, and causality in variance. For estimating portfolio market risk, this study employs Value-at-Risk with delta-normal approach. The results show whether fund managers would be able to diversify their portfolio in these developed stock markets either in long run or short run.

Suggested Citation

  • Aldrin Herwany & Erie Febrian, 2010. "Co-integration and Causality Analysis on Developed Asian Markets For Risk Management & Portfolio Selection," Working Papers in Business, Management and Finance 201001, Department of Management and Business, Padjadjaran University, revised Jan 2010.
    • Handle: RePEc:unp:wpaman:201001
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    3. Rahul Kumar Singh, 2023. "Efficiency of Wheat Futures across APMC Mandis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(3), pages 681-701, September.

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    More about this item

    Keywords

    Risk Management; Causality; Co-integration; Asian Stock Markets;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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