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A Study of Financial Integration and Optimal Diversification Strategy in ASEAN Equity Markets

Author

Listed:
  • Hwang, Peter

    (National Taiwan University)

  • Sitorus, Romora Edward

    (Universitas Siswa Bangsa Internasional)

Abstract
This paper examines the country and industry effects on the cross-sectional variance of firms’ equity return in the Association of Southeast Asian Nations (ASEAN) member countries. Using the model developed by Heston and Rouwenhorst (1994), this article covers five ASEAN countries and ten industries. We find that pure country effects are, on average, more important than pure industry effects in explaining equity return variation of ASEAN firms. In terms of portfolio diversification strategies in ASEAN, our results show that country diversification is a more effective strategy for risk management than industry diversification. We also discuss the impacts of subprime mortgage crisis on ASEAN countries and industries.

Suggested Citation

  • Hwang, Peter & Sitorus, Romora Edward, 2014. "A Study of Financial Integration and Optimal Diversification Strategy in ASEAN Equity Markets," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 29, pages 496-519.
    • Handle: RePEc:ris:integr:0639
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    Citations

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    Cited by:

    1. Li, Xiyang & Chen, Xiaoyue & Li, Bin & Singh, Tarlok & Shi, Kan, 2022. "Predictability of stock market returns: New evidence from developed and developing countries," Global Finance Journal, Elsevier, vol. 54(C).
    2. Ignatius Roni Setyawan & Buddi Wibowo, 2021. "Does Entropy Index Explain the Determinant of Capital Market Integration in ASEAN?," Capital Markets Review, Malaysian Finance Association, vol. 29(1), pages 17-39.

    More about this item

    Keywords

    Financial Integration; Industrial Structure; Emerging Markets; Diversification;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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