Dynamic Bilateral Integration of Stock Markets and Its Driving Factors
Dynamic Bilateral Integration of Stock Markets and Its Driving Factors

Summary/Abstract: This study aims to assess the degree of dynamic integration in developed and emerging stock markets and to investigate various factors fostering the integration of those markets. Dynamic conditional correlation (DCC) technique was used to identify the degree of dynamic correlation between two stock markets returns and henceforth it was applied as a measure for assessing the degree of integration. We employed panel data regression and GARCH (1,1) techniques to investigate its determinants using data observed during the period January 2000 to May 2016 on a monthly basis from four countries selected. Result obtained from the assessment indicated that different pairs of international stock markets displayed differing degree of integration. The investigation on the effects of its determinants suggested that interest rate and exchange rate volatility had negative effect on the degree of market integration. Furthermore, inflation rate had no effect, while crisis condition and return volatility increased the degree of market integration. Specifically, significant role of those factors in explaining dynamic integration was only found in emerging stock markets.

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