Cointegration between Southeast Asian and global equity markets

This study examines the financial cointegration between Southeast Asian stock markets—namely Vietnam, Thailand, the Philippines, Malaysia, Indonesia, and Singapore—and major global markets including the United States, United Kingdom, Germany, Japan, and China over the period from January 2009 to December 2023. The rationale for this research lies in the critical importance of understanding the extent of financial integration, which has significant implications for regional economic stability, cross-border investment strategies, and the formulation of effective financial policies. Employing the bounds testing approach for cointegration alongside an error-correction model (ECM) within the Autoregressive Distributed Lag (ARDL) framework, the analysis reveals robust short-term and long-term linkages between Southeast Asian and global stock markets. Of particular note is the strong and statistically significant integration with the Chinese stock market, highlighting China’s growing influence in the regional financial architecture. The findings underscore the necessity for investors to incorporate global market dynamics, especially those of China, into portfolio diversification decisions, while policymakers are advised to enhance regulatory measures to mitigate potential risks arising from global market shocks. This study thus offers valuable insights for advancing financial market development and stability in Southeast Asia amid increasing globalization.