STOCK MARKET INTEGRATION AND ECONOMIC UNCERTAINTY
A fully integrated market is immune to shocks. The study of financial integration indicates that stock markets experienced various level of integration amid the volatile economic environment. However, the impacts of economic uncertainty created by a series of economic turbulences are insufficiently addressed in the literature of stock market integration. The objective of this study is to examine the impact of economic uncertainty towards the stock market integration. The stock market integration is characterized by the convergence of stock returns derived from the stock market indices and the economic uncertainty is proxy by the uncertainties of output and exchange rate. The analysis of the study is conducted by using the annual data of ASEAN-5 over the period of 1991 to 2019. The stock market integration is examined by using the pooled mean group approach for the dynamics heterogeneous panel cointegration model. The study finds the stock return convergence which support evidence of stock market integration in economic uncertainty. By doing so, stock market integration may serve as a useful investment information indicator to facilitate investors for international portfolio diversification.
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