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Trade, Financial Flows and Stock Market Interdependence: Evidence from Asian Markets

Sowmya Dhanaraj, Arun Kumar Gopalaswamy and M. Suresh Babu

MSE WORKING PAPER 158/2017

Liberalization and globalization of Newly Industrialized Economies have contributed to increased integration of capital markets. This study tests whether convergence of macroeconomic variables and enhanced bilateral trade and financial flows causes greater interdependence of markets.Daily closing indices and quarterly differentials in interest, inflation,
growth rates, exchange rates, trade of goods and services, direct and portfolio investment were used. Results revealed that markets of Asia arenot immune to shocks originating in US although co-movements of macroeconomic variables do not help in explaining level of interdependence. Portfolio flows were found to be important than tradeflows in explaining market interdependence.

URL: http://www.mse.ac.in/wp-content/uploads/2017/03/Working-Paper-158-.pdf

Courtesy: MSE

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