Assessing ASEAN Capital Market Integration

Klongpawn Piumsombun

Student thesis: Master thesis


This thesis aims to assess the level of integration among the ASEAN capital markets, namely Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, by using daily and weekly indices between 2003 and 2013, under local currencies, Japanese Yen and the US Dollar. The period was also divided into three sub-periods, pre, during and after the crisis, which coincidentally the same period that ASEAN initiated major development plans. ASEAN formulated a blueprint for an establishment of ASEAN Economic Community by 2015, and endorsed an Implementation Plan that was specifically written for the goal of capital market integration. The thesis employs the techniques of beta and sigma convergence, and cointegration, to determine whether the markets are converging, and at what speed, to find evidence if the level of integration has deepened over time and to test for any long-run relationship that might exist between the markets. The empirical results suggested that ASEAN capital markets are integrating, but the level of integration is quite far from complete. Beta convergence reveals the existence of convergence, taken Singapore as the benchmark; all countries on average are converging to Singapore at almost a maximum speed, and the panel regression supports the argument. Sigma convergence displays a consistent result of the markets moving closer to integration, and this is confirmed by cointegration analysis. Although there are mixed result in the period before the crisis, the period during and after the crisis confirmed that the markets are cointegrated, hence are not completely segmented. However, only one cointegrating relationship was detected, implying an existence of long-run relationship but is still limited. ASEAN aims for the capital market to fully integrate in 2015, the initiatives written in the implementation plan is still ongoing, it might be too soon to conclude if the integration will be realized as anticipated. The results, though, display a positive prospect as the markets are progressing towards integration. Strict monitoring mechanism is needed to closely track the progress of these markets, so the strategies and the programs set up for this objective can be readjusted accordingly to ensure a successful integration.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2013
Number of pages97