Modelling evolving long-run relationships: The linkages between stock markets in Asia

Abstract

This paper examines the linkages between the stock markets in Asia during the 1977-1999 period using recently-developed co-integration techniques that allow for structural shifts in the long-run relationship. Our results suggest that, if we apply conventional co-integration tests, we do not find evidence of a long run relationship between the Asian stock markets. In contrast, if we introduce the possibility of structural breaks, we find strong evidence in favour of such relationship between the Taiwanese and Japanese indices from October 1987, while some marginal co-integration is detected between Singapore and Japan until February 1992 and between Korea and Japan from April 1987.