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Permanent and Transitory Driving Forces in the Asian‐Pacific Stock Markets

Permanent and Transitory Driving Forces in the Asian‐Pacific Stock Markets This paper uses weekly data from November 1987 through May 1999 to examine whether U.S. or the Japan stock market (or both) is the main driving force behind major movements in eleven emerging Asian‐Pacific stock markets. We find a robust cointegrating relation linking each of the emerging market with the two matured markets of the U.S. and Japan. The results also show that the U.S., rather than Japan, is the main permanent force driving the equilibrium relations across all Asian‐Pacific markets. In contrast, the effect of the Japanese market on the Asian‐Pacific region is only transitory. Therefore, strategic asset portfolios in the Asian‐Pacific region should include Japanese stocks to diversify any country specific risks. As to U.S. investors, the persistent influence of the U.S. market may limit long‐run diversification gains from Asian‐Pacific stocks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Financial Review Wiley

Permanent and Transitory Driving Forces in the Asian‐Pacific Stock Markets

The Financial Review , Volume 37 (1) – Feb 1, 2002

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Publisher
Wiley
Copyright
Copyright © 2002 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0732-8516
eISSN
1540-6288
DOI
10.1111/1540-6288.00003
Publisher site
See Article on Publisher Site

Abstract

This paper uses weekly data from November 1987 through May 1999 to examine whether U.S. or the Japan stock market (or both) is the main driving force behind major movements in eleven emerging Asian‐Pacific stock markets. We find a robust cointegrating relation linking each of the emerging market with the two matured markets of the U.S. and Japan. The results also show that the U.S., rather than Japan, is the main permanent force driving the equilibrium relations across all Asian‐Pacific markets. In contrast, the effect of the Japanese market on the Asian‐Pacific region is only transitory. Therefore, strategic asset portfolios in the Asian‐Pacific region should include Japanese stocks to diversify any country specific risks. As to U.S. investors, the persistent influence of the U.S. market may limit long‐run diversification gains from Asian‐Pacific stocks.

Journal

The Financial ReviewWiley

Published: Feb 1, 2002

Keywords: ; ; ; ;

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