Review of Quantitative Finance and Accounting, 24: 359–377, 2005
2005 Springer Science + Business Media, Inc. Manufactured in The Netherlands.
Financial Crisis and Intertemporal Linkages Across
the ASEAN-5 Stock Markets
Faculty of Economics & Administration, University of Malaya, 50603 Kuala Lumpur, Malaysia, Tel: 603–
79673608; Fax: 603–79567252
Sunway University College, No. 5, Jalan Kolej, Bandar Sunway, 46150 Petaling Jaya, Selangor, Malaysia
Taylor’s Business School, Wisma Subang Jaya, Jalan SS15/4, 47500 Subang Jaya, Selangor, Malaysia
Abstract. The stock indices of ﬁve ASEAN countries, namely, Singapore, Malaysia, Indonesia, Thailand and
the Philippines have experienced a structural change after mid-1997 due to the Asian ﬁnancial crisis, and another
shift slightly more than a year later when the markets rebounded. Contemporaneous correlation in stock returns
is the strongest and Indonesia leads the movements of the other indices during the crisis. The relative inﬂuence
of foreign shocks is much more felt during the crisis, as seen in the stronger and longer horizon of responses of
all the markets. The stock indices are cointegrated before, but not during the crisis. Price feedbacks between the
larger markets of Singapore, Malaysia and Indonesia that existed before the crisis disappear once the crisis is over.
Short-run linkages of Malaysia with the other markets have weakened after the crisis. With an increase in the
degree of exogeneity of its stock market, contemporaneous co-movements with the other markets have reduced
and the causal relationships no longer exist.
Keywords: contagion effects, market inter-relations, regional bloc, structural change
JEL Classiﬁcation: G15, F30
The existence of linkages across different national stock markets has important implications
for investors who are seeking diversiﬁcation opportunities in foreign markets. When dif-
ferent markets are inter-related through such linkages, price movements in any one market
would be representative of the group behaviour and this would reduce the possibilities for
portfolio diversiﬁcation. This implication has sparked interests in many studies to investigate
whether markets are inter-related across national boundaries (see, for example, Sheng and
An earlier draft of this paper was presented at the 11th Annual Conference on Paciﬁc Basin Finance, Economics
& Accounting held in Taipei. This paper beneﬁted from the discussions at the conference. We are grateful to two
anonymous referees for helpful comments and suggestions which led to further improvement of the paper.