Stock–bond co-movement in ASEAN-5: the role of financial integration and financial development
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 1 June 2021
Issue publication date: 16 May 2023
Abstract
Purpose
This study aims to observe the extent of asset diversification benefits in the Association of Southeast Asian Nations (ASEAN)-5 market by examining the effect of financial integration (FI) and financial development (FD) on domestic stock–bond co-movements, SBcorr.
Design/methodology/approach
The dynamic conditional correlation - multivariate generalized autoregressive conditional heteroskedasticity (DCC-MGARCH) technique is adopted to construct FI and stock−bond co-movement variables. Then, the study uses static panel data analysis to examine the effect of FI on stock−bond co-movements.
Findings
FI does not provide asset diversification benefits due to high country risks in ASEAN-5. However, when FI is moderated by FD, FI × FD, the study shows that FI × FD provides higher asset diversification benefits in ASEAN-5.
Originality/value
This study shows the importance of incorporating the level of FD when assessing the effect of FI on stock–bond co-movements in ASEAN-5. In the presence of FI, a well-diversified investor should always consider the state of FD, which will show a better representation of asset diversification strategy in the emerging markets. Additionally, policymakers of ASEAN-5 countries should prioritise enhancing their financial system to attract more investment into the countries.
Keywords
Citation
Khalid, A. and Ahmad, Z. (2023), "Stock–bond co-movement in ASEAN-5: the role of financial integration and financial development", International Journal of Emerging Markets, Vol. 18 No. 5, pp. 1033-1052. https://doi.org/10.1108/IJOEM-11-2020-1312
Publisher
:Emerald Publishing Limited
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