A study of cointegration and variance decomposition among national equity indexes before and during the period of Asian financial crisis

Abstract

The study uses cointegration and variance decomposition analysis to examine the linkages among the stock markets in twelve Asia-Pacific countries before and during the period of Asian financial crisis. Johansen's ( l988) multivariate cointegration and error-correction tests show some evidence in support of the existence of cointegration relationships among the national stock indexes during, but none before, the period of financial crisis. The relationship for the South-East Asian countries seems to be stronger than that for the North-East Asian countries. The variance decomposition find that the "degree of exogeneity" for all indexes has been reduced, implying no countries are "exogenous" to the financial crisis.