Research Paper Emerging Stock Market Comovements and the Third-Country Effects

Hirata, Hideaki  ,  Kim, Sunghyun henry

192pp.1 - 16 , 2015-03-17 , Institute of Comparative Economic Studies, Hosei University
This paper investigates the effects of financial globalization; in particular cross-border capital flows in financial markets, on excess pairwise stock return comovements in emerging Asian countries during 2001-2012. Increased comovements in excess stock returns are mainly explained by the third-country effect from G7 countries, not by bilateral capital flows between Asian countries. That is, a high correlation of stock returns in emerging Asia is the result of synchronized capital flows from G7 countries into Asian financial markets, not by portfolio investment among Asian countries. This result provides evidence that “coupling” is still a reality in terms of stock returns in emerging Asia.

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