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Stock–bond co-movement in ASEAN-5: the role of financial integration and financial development

Stock–bond co-movement in ASEAN-5: the role of financial integration and financial development 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/approachThe 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.FindingsFI 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/valueThis 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Emerging Markets Emerald Publishing

Stock–bond co-movement in ASEAN-5: the role of financial integration and financial development

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References (56)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1746-8809
DOI
10.1108/ijoem-11-2020-1312
Publisher site
See Article on Publisher Site

Abstract

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/approachThe 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.FindingsFI 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/valueThis 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.

Journal

International Journal of Emerging MarketsEmerald Publishing

Published: May 16, 2023

Keywords: Stock–bond co-movement; Financial integration; Financial development

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