Financial integration in ASEAN+3 bond markets: Evidence in financial crisis

Abstract

The objective of this study is to investigate whether the ASEAN, ASEAN+3 and US markets are integrated or segmented. The countries that are included in the sample are five ASEAN countries comprise Malaysia, Thailand, Singapore, Indonesia, and Philippines plus Japan, Korea, China, Taiwan, and Hong Kong and US countries. In this study, the data will be divided into two financial crises which are Asian financial crisis and global financial crisis which each is divided into three sub-periods namely the pre-crisis period, crisis period, and post crisis period. Methods of this study are correlation analysis, unit root test, Johansen's cointegration test and Granger causality test. The findings show that government bond yield markets are more related during post crisis period as compared to pre-crisis period for both Asian financial crisis and global financial crisis. The government bond markets are found to be less cointegrated among themselves. In terms of causality test, it can be argued that global crisis period seems to be more significant causality related as compared to Asian crisis period. There is a possibility that the government bond yield markets are more related in the later years as compared to the earlier years. Further, it can be argued that for markets that are less cointegrated, investors can enjoy long-run international diversification benefits by investing across these markets because they do not have a tendency to move together in the long run.