Integration of the South and East Asian Stock Markets: How Long to Go?

This paper reappraises the global and regional integration for 6 Southeast Asian stock markets. A time‐varying analysis based on Barari (2004) suggests that Malaysia, South Korea and Thailand have shown significant movement towards international financial integration.The estimates based on TARCH model imply significant support for returns and volatility spillover effects from the World as well as regional markets to all the stock markets except Pakistan. The stock market liberalization measures such as First Country Fund, First Depository Receipt, and First Cross Listing appeared to have induced more positive return spillover effects from the World to India, Indonesia and South Korea. These results have policy implication for the international portfolio investors in sense that portfolio diversification advantages are rather less in Malaysia, South Korea compared to India and Pakistan which still provide higher returns through portfolio diversification.