Study on the Correlation between Capital Account Opening and Financial Market Stability-Evidence from Thailand

Abstract

This study intends to explore the impact of Thailand's capital account opening on financial market stability. The data period in this paper is from 2000 to 2018, the sample country is Thailand, and annual data are collected. The degree of capital account opening uses the capital account net value as the data, the financial market stability uses the Thailand stock price index as the proxy variable, and the control variable uses the International Monetary Fund (IMF) indicator: the financial market efficiency index. We use wavelet analysis to demonstrate it. Empirical results: (1) on the island of correlation, regardless of whether control variables are included, there is no correlation between the two variables during the full sample period. The degree of capital account opening in Thailand is not related to the stability of the financial market (Thailand stock market). (2) The short-term (1-4 years) phase difference shows that, regardless of whether the control variables are included; there is no correlation between the two variables during the entire sample period. The degree of capital account opening in Thailand is not related to the stability of the financial market (Thailand stock market). There is no long-term (4-8 years) linkage relationship. In view of the empirical results, it is recommended that international investors be optimistic about the changes in the degree of capital account opening in Thailand's balance of payments and the changes in its net value when investing in the Thailand's stock market in the short and long-term. Because of the degree of opening of the Thailand's capital account, there is no correlation to the Thailand's stock market. Therefore, international investors can ignore this overall economic indicator when investing in long- and short-term investments.