Premium
Permanent and Transitory Driving Forces in the Asian‐Pacific Stock Markets
Author(s) -
Darrat Ali F.,
Zhong Maosen
Publication year - 2002
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/1540-6288.00003
Subject(s) - stock (firearms) , diversification (marketing strategy) , asia pacific , stock market , financial economics , pacific rim , economics , monetary economics , business , geography , economy , context (archaeology) , archaeology , marketing
This paper uses weekly data from November 1987 through May 1999 to examine whether U.S. or the Japan stock market (or both) is the main driving force behind major movements in eleven emerging Asian‐Pacific stock markets. We find a robust cointegrating relation linking each of the emerging market with the two matured markets of the U.S. and Japan. The results also show that the U.S., rather than Japan, is the main permanent force driving the equilibrium relations across all Asian‐Pacific markets. In contrast, the effect of the Japanese market on the Asian‐Pacific region is only transitory. Therefore, strategic asset portfolios in the Asian‐Pacific region should include Japanese stocks to diversify any country specific risks. As to U.S. investors, the persistent influence of the U.S. market may limit long‐run diversification gains from Asian‐Pacific stocks.