Suluck Pattarathammas and Anya Khanthavit
This paper aims to test the hypothesis that the national stock market returns are driven by a world factor, regional factors and idiosyncratic factors, and to measure the…
Abstract
Purpose
This paper aims to test the hypothesis that the national stock market returns are driven by a world factor, regional factors and idiosyncratic factors, and to measure the importance of each factor.
Design/methodology/approach
The state‐space model is applied to describe the sample returns and estimate a world factor, regional factors and idiosyncratic factors by Kalman filtering. Weekly and daily returns calculated from MSCI country indexes from January 1988 to December 2004 of 11 national stock markets in four regions, i.e. North America (the USA and Canada), South America (Brazil, Mexico and Chile), Europe (the UK, Germany and France), and Asia (Japan, Hong Kong, and Singapore) are used.
Findings
The results support the hypothesis that national market returns are driven by a world factor, regional factors and idiosyncratic factors. National markets do not always respond mainly to the world factor; regional factors and idiosyncratic factors play important roles as well. They also respond to world news at a slower rate than regional news.
Research limitations/implications
This paper does not identify the source or origins of news directly but the factors are assumed as random variables and are estimated under certain strict assumptions.
Originality/value
This paper applies Kalman filtering to estimate a world factor and regional factors and test the importance of each factor directly, an extension of previous studies that mostly showed strong independence among markets.
Details
Keywords
Daniel F.S. Choi and Woramon Clovutivat
The Thai stock market maintains two separate listings for common stocks which have reached foreign ownership limits. Prices on the Foreign Board are typically traded at a premium…
Abstract
The Thai stock market maintains two separate listings for common stocks which have reached foreign ownership limits. Prices on the Foreign Board are typically traded at a premium relative to prices on the Main Board. The price premium is both a measure and evidence of market segmentation. Thai commercial banks were faced with financial and operational difficulties in the wake of the 1997 financial crisis. To rescue the banking industry, the Thai government relaxed the foreign ownership limit for a ten‐year period. We show in this paper that the Thai banking industry was segmented before the crisis; but when the foreign ownership limits were removed, the banking industry was integrated.