The interdependence of share markets in the developed economies of East Asia

The interdependence of five East Asian stock price indices is analysed on daily data from July 8, 1990 to July 6, 2000 (n = 2739). A simple correlation analysis of the co-movement of the Singapore Strait Times (SST), Korea Composite (KC), Japanese Nikkei (JN), Taiwan weighted (TW) and Hang Seng (HS) indices reveals that correlation has strengthened since the Asian crisis. Further half of the bivariate pairings of these indices indicates nonbreaking bivariate cointegration, while four are cointegrated subject to a structural break. These results are supported by both multivariate cointegration and ECM. Granger causality applies when cointegration is not evident. The degree of integration among these five SPIs has increased and the opportunities for risk diversification has lessened in the 1990s.