Impact of COVID-19 on long run and short run financial integration among emerging Asian stock markets
Abstract
Purpose –The study aims at exposing any possible impact of COVID-19 on short-run and long-run financial integration among five emerging Asian economies viz., China, South Korea, India, Indonesia and Taiwan.
Research methodology – Daily closing indices of selected countries have been analyzed from January 2010 – September 2021. The integration among the selected economies has been examined for long-run and short-run through Johansan co-integration and Granger causality tests respectively.
Findings – The analysis revealed that coronavirus weakened integration among nations. The absence of long-run integration was observed after the onset of COVID-19. During pre-covid period, unidirectional as well as bi-directional causal relations were present, but after the outbreak of COVID-19, only South Korea and China reported short-term linkage.
Research limitations – The results are subject to the limitation of limited data and reference period. Further, daily returns of different stock markets are subject to domestic shock which has not been analyzed in the present study.
Practical implications – Since the absence of integration indicates an ample opportunity for risk minimization through international diversification of the portfolio, the results are expected to be very useful for investors, researchers and regulators.
Originality/Value – In present times, researchers are showing keen interest to know the possible impact of COVID-19 on linkages of international financial markets. However in spite of being rapidly growing economies, countries selected in the present study have not been explored much.
The present study aims to bridge this research gap.
Keyword : COVID-19, emerging Asian countries, financial integration and stock markets
How to Cite
Bhardwaj, N., Sharma, N., & Mavi, A. K. (2022). Impact of COVID-19 on long run and short run financial integration among emerging Asian stock markets. Business, Management and Economics Engineering, 20(2), 189–206. https://doi.org/10.3846/bmee.2022.16344
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Babu, M., Hariharan, C., & Srinivasan, S. (2016). Interlinkage of Asian-Pacific stock markets: An empirical study. Amity Journal of Finance, 1(1), 48–56.
Bhullar, P. S. (2019). Stock market integration among asian economies a case of India, China and Japan. International Research Journal of Business Studies, 12(2), 137–143. https://doi.org/10.21632/irjbs.12.2.137-143
Bhunia, A., & Das, A. (2012). Financial market integration: Empirical evidence from India and select South Asian countries. IJSER Journal, 3(3), 404–409.
Bhunia, A., & Ganguly, S. (2015). Does Indian stock market rely on other Asian stock markets? American Research Journal of Humanities and Social Sciences, 1(1), 32–39. https://www.arjonline.org/papers/arjhss/v1-i1/5.pdf
Bhowmik, R., & Wang, S. (2018). An investigation of return and volatility linkages among stock markets: A study of emerging Asian and selected developed countries. Journal of International Trade and Commerce, 14(4), 1–29. https://doi.org/10.16980/jitc.14.4.201808.1
Bodla, B. S., & Sharma, G. D. (2011). Inter-linkages among stock markets of South Asia. Asia-Pacific Journal of Business Administration, 3(2), 132–148. https://doi.org/10.1108/17574321111169821
Caporale, G. M., You, K., & Chen, l. (2019). Global and regional stock market integration in Asia: A panel convergence approach. International Review of Financial Analysis, 65, 101381. https://doi.org/10.1016/j.irfa.2019.101381
Chaudhary, R., Bakshi, P., & Gupta, H. (2020). Volatility in international stock markets: An empirical study during COVID-19. Risk and Financial Management, 13(9), 208. https://doi.org/10.3390/jrfm13090208
Chattopadhyay, S. K. & Behera, S. R. (2006). Financial integration for Indian stock market. In The Annual Conference on Money & Finance. IGIDR. http://www.igidr.ac.in/conf/money1/mfc_08/Financial_Integration__for%20Indian%20Stock...%20Sadhan%20Kumar....pdf
Dhal, S. (2009). Global financial crises and the integration of India’s stock market. Journal of Economic Integration, 24(4), 778–805. https://doi.org/10.11130/jei.2009.24.4.778
Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57–66. https://doi.org/10.1016/j.ijforecast.2011.02.006
Divecha, Darch, J., &Stefek, D. (1992). Emerging markets: A quantitative perspective. Journal of Portfolio Management, 21(1), 41–50. https://doi.org/10.3905/jpm.1992.409433
Dhanaraj, S, Gopalaswamy, A., & Sureshbabu, M. (2013). Dynamic interdependence between US and Asian markets: An empirical study. Journal of Financial Economic Policy, 5, 220–237. https://doi.org/10.1108/17576381311329670
Esteves, R., & Sussman, N. (2020). Corona spreads to emerging markets. In S. Djankov & U. Panizza (Eds.), Covid-19 in developing economies (pp. 362–373). A CEPR Press.
Fama, F. E. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417. https://doi.org/10.2307/2325486
Gao, X., Ren, Y., & Umar, M. (2021). To what extent does COVID-19 drive stock market volatility? A comparison between the US and China. Economic Research-Ekonomska Istrazivanja. https://doi.org/10.1080/1331677X.2021.1906730
Gupta, N., & Agarwal, V. (2011). Comparative study of distribution of Indian stock market with other Asian markets. International Journal of Enterprise Computing and Business Systems, 1(2), 1–20.
International Monetary Fund. (2020). World economic outlook. Washington, D.C.
Iqbal, A., Khalid, N., & Rafiq, S. (2011). Dynamic Interrelationship among the Stock Markets of India, Pakistan and United States. International Journal of Human Social Sciences, 6(1), 31–37.
Kharka, D. S., Turan, M., & Kaushik, K. (2012). Stock market Integration in South Asia. International Journal of Management and Information Technology, 1(2), 8–20. https://doi.org/10.24297/ijmit.v1i2.1442
Kumar, R., & Dhankar, S. (2017). Financial instability, integration and volatility of emerging South Asian stock markets. South Asian Journal of Business Studies, 6(2), 170–190. https://doi.org/10.1108/SAJBS-07-2016-0059
Kumar, V., & Aurora, S. (2020). Study on stock market cointegration: A case of India and China. Journal Press India, 7(1), 76–87. https://doi.org/10.17492/focus.v7i1.195423
Mandal, A., & Bhattacharjee, P. (2012). The Indian stock market and the great recession. Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania – AGER, 3(568), 51–76.
Mazur, M., Dang, M., & Vega, M. (2021). COVID-19 and the March 2020 stock market crash. Evidence from S&P 1500. Elsevier Public Health Emergency Collection, 38, 101690. https://doi.org/10.1016/j.frl.2020.101690
MSCI. (2021), MSCI Emerging Markets Asia Index (USD). https://www.msci.com/documents/10199/17e9365e-fbf6-407e-9f48-808f7b75a5bf
Narayan, S. W., & Rehman, M. (2018). Portfolio diversification opportunities within emerging and Frontier stock market: Evidence from 10 Asian countries. Bulletin of monetary Economics and Banking, 21(1). https://doi.org/10.21098/bemp.v21i1.893
Palamalai, S., Kalaivani, M., & Devakumar, C. (2013). Stock market linkages in emerging Asia-Pacific markets. SAGE Open. https://doi.org/10.1177/2158244013514060
Park, C. Y., & Lee, J. W. (2011). Financial integration in emerging Asia: Challenges and prospects. Asian Economic Policy Review, 6(2), 176–198. https://doi.org/10.1111/j.1748-3131.2011.01193.x
Patel, S. A. (2012). Casual and co-integration Analysis of Indian stock market and selected Asian stock markets. Drishtikon: A Management Journal, 5(1), 35–52.
Pinglin H., Sun, Y., & Zhang, Y. (2020). Covid-19’s impact on stock prices across different sectors – An event study based on the Chinese stock market. Emerging Markets Finance and Trade, 56(10), 2198–2212. https://doi.org/10.1080/1540496X.2020.1785865
Potharla, S. (2012). Integration of Indian stock market with other markets in the Asia-Pacific region. The IUP Journal of Financial Economics, 10(1), 18–32.
Raj, J., & Dhal, S. (2006). Integration of India’s stock market with global and major regional markets. (BIS Papers 42, 202-36). Bank for International Settlements. https://www.bis.org/publ/bppdf/bispap42h.pdf
Rajwani, S., & Mukherjee. (2013). Is the Indian stock market cointegrated with other Asian markets? Management Research Review, 36(9), 899–918. https://doi.org/10.1108/MRR-06-2012-0141
Rizwanullah, M., Liang, L., Yu, X., Zhou, J., Nasrullah, M., & Ali, M. U. (2020). Exploring the cointegration relation among top eight Asian stock markets. Open Journal of Business and Management, 8(3). https://doi.org/10.4236/ojbm.2020.83068
Reddy, K. (2010). Can investors achieve portfolio diversification by investing in Asian-Pacific growth basin? A case of cointegration and causality. https://www.researchgate.net/publication/256007340_Cointegration_and_Causality_within_the_Asia-Pacific_Growth_Basin_The_Case_of_Portfolio_Diversification_and_the_Asian_Financial_Crisis
Sehgal, S., Bijoy, K. E., & Saini, S. (2019). Stock market linkages and spillover effects: An empirical analysis of select Asian markets. Theoretical Economics Letters, 9(5), 1447–1472. https://doi.org/10.4236/tel.2019.95093
Sharma, G. D., Mahendru, M., & Singh, S. (2013). Are the stock exchange of emerging economies interlinked: Evidence from BRICS. Indian Journal of Finance, 7(1), 26–37.
Song, G., Xia, Z., Basheer, M. F., & Shah, S. M. (2021). Co-movement of US and China stock market: Evidences from Covid 19 breakdown. Economic Research-Ekonomska Istrazivanja. https://doi.org/10.1080/1331677X.2021.1957971
Sugandi, E. A. (2020). Indonesia’s financial markets and monetary policy dynamics amid the Covid-19 pandemic (ADBI Working Paper 1198). Asian Development Bank Institute, Tokyo. https://doi.org/10.2139/ssrn.3712774
Tripathy, N., & Mishra, S. (2021). The dynamics of cointegration between economic growth and financial development in emerging Asian economy: Evidence from India. Vision: The Journal of Business Perspective. https://doi.org/10.1177/09722629211011811
Utomo, C. U., & Hanggraeni, D. (2021). The Impact of COVID_19 Pandemic on Stock Market Performance in Indonesia. The Journal of Asian Finance, Economics and Business, 8(5), 777–784.
Verma, R. P., & Rani, P. (2016). Emerging stock market integration in the post financial crises era: An empirical analysis of the short-term and long-term linkages. Emerging Economics Studies, 2(1), 91–109. https://doi.org/10.1177/2394901516628400
Younis, I., Longsheng, C., Basheer, M. F., & Joyo, A. S. (2020). Stock market co-movements among Asian emerging economies: A wavelet-based approach. PLoS ONE, 15(10), e0240472. https://doi.org/10.1371/journal.pone.0240472
Youssef, M., Mokni, K., & Ajmi, A. N. (2021). Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: Does economic policy uncertainty matter? Financial Innovation, 7(13). https://doi.org/10.1186/s40854-021-00227-3
Zhang, P., Zhang, L., Meng, Z., & Wang, T. (2021a). Dynamic Spillover Effects of Investor Sentiment and Return between China and the United States. Discrete Dynamics in Nature and Society. https://doi.org/10.1155/2021/6622261
Zhang, N., Wang, A., Haq, N. U., & Nosheen, S. (2021b). The impact of COVID-19 shocks on the volatility of stock markets in technologically advanced countries. Economic Research-Ekonomska Istraživanja. https://doi.org/10.1080/1331677X.2021.1936112
Ali, M., Alam, N., & Rizvi, S. A. (2020). Coronavirus – An epidemic or pandemic for financial markets. Journal of Behavioural and Experimental Finance, 27, 100341. https://doi.org/10.1016/j.jbef.2020.100341
Ardliansyah, R. (2012). Stock market integration and international portfolio diversification between U.S. and ASEAN equity markets. Centre for Economic and Financial Studies, University of Glasgow. https://doi.org/10.2139/ssrn.2161330
Babu, M., Hariharan, C., & Srinivasan, S. (2016). Interlinkage of Asian-Pacific stock markets: An empirical study. Amity Journal of Finance, 1(1), 48–56.
Bhullar, P. S. (2019). Stock market integration among asian economies a case of India, China and Japan. International Research Journal of Business Studies, 12(2), 137–143. https://doi.org/10.21632/irjbs.12.2.137-143
Bhunia, A., & Das, A. (2012). Financial market integration: Empirical evidence from India and select South Asian countries. IJSER Journal, 3(3), 404–409.
Bhunia, A., & Ganguly, S. (2015). Does Indian stock market rely on other Asian stock markets? American Research Journal of Humanities and Social Sciences, 1(1), 32–39. https://www.arjonline.org/papers/arjhss/v1-i1/5.pdf
Bhowmik, R., & Wang, S. (2018). An investigation of return and volatility linkages among stock markets: A study of emerging Asian and selected developed countries. Journal of International Trade and Commerce, 14(4), 1–29. https://doi.org/10.16980/jitc.14.4.201808.1
Bodla, B. S., & Sharma, G. D. (2011). Inter-linkages among stock markets of South Asia. Asia-Pacific Journal of Business Administration, 3(2), 132–148. https://doi.org/10.1108/17574321111169821
Caporale, G. M., You, K., & Chen, l. (2019). Global and regional stock market integration in Asia: A panel convergence approach. International Review of Financial Analysis, 65, 101381. https://doi.org/10.1016/j.irfa.2019.101381
Chaudhary, R., Bakshi, P., & Gupta, H. (2020). Volatility in international stock markets: An empirical study during COVID-19. Risk and Financial Management, 13(9), 208. https://doi.org/10.3390/jrfm13090208
Chattopadhyay, S. K. & Behera, S. R. (2006). Financial integration for Indian stock market. In The Annual Conference on Money & Finance. IGIDR. http://www.igidr.ac.in/conf/money1/mfc_08/Financial_Integration__for%20Indian%20Stock...%20Sadhan%20Kumar....pdf
Dhal, S. (2009). Global financial crises and the integration of India’s stock market. Journal of Economic Integration, 24(4), 778–805. https://doi.org/10.11130/jei.2009.24.4.778
Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57–66. https://doi.org/10.1016/j.ijforecast.2011.02.006
Divecha, Darch, J., &Stefek, D. (1992). Emerging markets: A quantitative perspective. Journal of Portfolio Management, 21(1), 41–50. https://doi.org/10.3905/jpm.1992.409433
Dhanaraj, S, Gopalaswamy, A., & Sureshbabu, M. (2013). Dynamic interdependence between US and Asian markets: An empirical study. Journal of Financial Economic Policy, 5, 220–237. https://doi.org/10.1108/17576381311329670
Esteves, R., & Sussman, N. (2020). Corona spreads to emerging markets. In S. Djankov & U. Panizza (Eds.), Covid-19 in developing economies (pp. 362–373). A CEPR Press.
Fama, F. E. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417. https://doi.org/10.2307/2325486
Gao, X., Ren, Y., & Umar, M. (2021). To what extent does COVID-19 drive stock market volatility? A comparison between the US and China. Economic Research-Ekonomska Istrazivanja. https://doi.org/10.1080/1331677X.2021.1906730
Gupta, N., & Agarwal, V. (2011). Comparative study of distribution of Indian stock market with other Asian markets. International Journal of Enterprise Computing and Business Systems, 1(2), 1–20.
International Monetary Fund. (2020). World economic outlook. Washington, D.C.
Iqbal, A., Khalid, N., & Rafiq, S. (2011). Dynamic Interrelationship among the Stock Markets of India, Pakistan and United States. International Journal of Human Social Sciences, 6(1), 31–37.
Kharka, D. S., Turan, M., & Kaushik, K. (2012). Stock market Integration in South Asia. International Journal of Management and Information Technology, 1(2), 8–20. https://doi.org/10.24297/ijmit.v1i2.1442
Kumar, R., & Dhankar, S. (2017). Financial instability, integration and volatility of emerging South Asian stock markets. South Asian Journal of Business Studies, 6(2), 170–190. https://doi.org/10.1108/SAJBS-07-2016-0059
Kumar, V., & Aurora, S. (2020). Study on stock market cointegration: A case of India and China. Journal Press India, 7(1), 76–87. https://doi.org/10.17492/focus.v7i1.195423
Mandal, A., & Bhattacharjee, P. (2012). The Indian stock market and the great recession. Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania – AGER, 3(568), 51–76.
Mazur, M., Dang, M., & Vega, M. (2021). COVID-19 and the March 2020 stock market crash. Evidence from S&P 1500. Elsevier Public Health Emergency Collection, 38, 101690. https://doi.org/10.1016/j.frl.2020.101690
MSCI. (2021), MSCI Emerging Markets Asia Index (USD). https://www.msci.com/documents/10199/17e9365e-fbf6-407e-9f48-808f7b75a5bf
Narayan, S. W., & Rehman, M. (2018). Portfolio diversification opportunities within emerging and Frontier stock market: Evidence from 10 Asian countries. Bulletin of monetary Economics and Banking, 21(1). https://doi.org/10.21098/bemp.v21i1.893
Palamalai, S., Kalaivani, M., & Devakumar, C. (2013). Stock market linkages in emerging Asia-Pacific markets. SAGE Open. https://doi.org/10.1177/2158244013514060
Park, C. Y., & Lee, J. W. (2011). Financial integration in emerging Asia: Challenges and prospects. Asian Economic Policy Review, 6(2), 176–198. https://doi.org/10.1111/j.1748-3131.2011.01193.x
Patel, S. A. (2012). Casual and co-integration Analysis of Indian stock market and selected Asian stock markets. Drishtikon: A Management Journal, 5(1), 35–52.
Pinglin H., Sun, Y., & Zhang, Y. (2020). Covid-19’s impact on stock prices across different sectors – An event study based on the Chinese stock market. Emerging Markets Finance and Trade, 56(10), 2198–2212. https://doi.org/10.1080/1540496X.2020.1785865
Potharla, S. (2012). Integration of Indian stock market with other markets in the Asia-Pacific region. The IUP Journal of Financial Economics, 10(1), 18–32.
Raj, J., & Dhal, S. (2006). Integration of India’s stock market with global and major regional markets. (BIS Papers 42, 202-36). Bank for International Settlements. https://www.bis.org/publ/bppdf/bispap42h.pdf
Rajwani, S., & Mukherjee. (2013). Is the Indian stock market cointegrated with other Asian markets? Management Research Review, 36(9), 899–918. https://doi.org/10.1108/MRR-06-2012-0141
Rizwanullah, M., Liang, L., Yu, X., Zhou, J., Nasrullah, M., & Ali, M. U. (2020). Exploring the cointegration relation among top eight Asian stock markets. Open Journal of Business and Management, 8(3). https://doi.org/10.4236/ojbm.2020.83068
Reddy, K. (2010). Can investors achieve portfolio diversification by investing in Asian-Pacific growth basin? A case of cointegration and causality. https://www.researchgate.net/publication/256007340_Cointegration_and_Causality_within_the_Asia-Pacific_Growth_Basin_The_Case_of_Portfolio_Diversification_and_the_Asian_Financial_Crisis
Sehgal, S., Bijoy, K. E., & Saini, S. (2019). Stock market linkages and spillover effects: An empirical analysis of select Asian markets. Theoretical Economics Letters, 9(5), 1447–1472. https://doi.org/10.4236/tel.2019.95093
Sharma, G. D., Mahendru, M., & Singh, S. (2013). Are the stock exchange of emerging economies interlinked: Evidence from BRICS. Indian Journal of Finance, 7(1), 26–37.
Song, G., Xia, Z., Basheer, M. F., & Shah, S. M. (2021). Co-movement of US and China stock market: Evidences from Covid 19 breakdown. Economic Research-Ekonomska Istrazivanja. https://doi.org/10.1080/1331677X.2021.1957971
Sugandi, E. A. (2020). Indonesia’s financial markets and monetary policy dynamics amid the Covid-19 pandemic (ADBI Working Paper 1198). Asian Development Bank Institute, Tokyo. https://doi.org/10.2139/ssrn.3712774
Tripathy, N., & Mishra, S. (2021). The dynamics of cointegration between economic growth and financial development in emerging Asian economy: Evidence from India. Vision: The Journal of Business Perspective. https://doi.org/10.1177/09722629211011811
Utomo, C. U., & Hanggraeni, D. (2021). The Impact of COVID_19 Pandemic on Stock Market Performance in Indonesia. The Journal of Asian Finance, Economics and Business, 8(5), 777–784.
Verma, R. P., & Rani, P. (2016). Emerging stock market integration in the post financial crises era: An empirical analysis of the short-term and long-term linkages. Emerging Economics Studies, 2(1), 91–109. https://doi.org/10.1177/2394901516628400
Younis, I., Longsheng, C., Basheer, M. F., & Joyo, A. S. (2020). Stock market co-movements among Asian emerging economies: A wavelet-based approach. PLoS ONE, 15(10), e0240472. https://doi.org/10.1371/journal.pone.0240472
Youssef, M., Mokni, K., & Ajmi, A. N. (2021). Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: Does economic policy uncertainty matter? Financial Innovation, 7(13). https://doi.org/10.1186/s40854-021-00227-3
Zhang, P., Zhang, L., Meng, Z., & Wang, T. (2021a). Dynamic Spillover Effects of Investor Sentiment and Return between China and the United States. Discrete Dynamics in Nature and Society. https://doi.org/10.1155/2021/6622261
Zhang, N., Wang, A., Haq, N. U., & Nosheen, S. (2021b). The impact of COVID-19 shocks on the volatility of stock markets in technologically advanced countries. Economic Research-Ekonomska Istraživanja. https://doi.org/10.1080/1331677X.2021.1936112