Stock market integration in the Asia-Pacific region: Evidence from cointegration of liquidity risk

This paper investigates the progress of financial integration in the Asia-Pacific region. Using a stock market liquidity measure and cointegration technique, we show that Asia-Pacific stock markets are not fully segmented in terms of liquidity risk and hence, stock market integration is feasible. Moreover, we find that the number of cointegrating vectors for different types of samples declines during the global financial crisis. This may indicate that the global financial crisis tempers the extent to which Asia-Pacific stock markets are integrated. Hence, the influence of financial crises should be considered by policy makers in designing stock market integration, while global investors can still benefit from diversifying portfolio investments in the Asia-Pacific region.