The recent years, this transformation has been further accelerated

The polemic about the growing internationalization of product and capital markets has sparked renewed interest in the efficiency of financial markets. Important structural changes in the markets for financial services, improved communication, information and production technology, as well as a significant increase in the cross-listings of multinational company stocks, have all contributed to a substantial increase in cross-border investment and international stock market activities.

In recent years, this transformation has been further accelerated by the generalized trend towards liberalization and deregulation of money and capital markets in both developed and developing countries, and the development and growth of derivative securities. Beginning in the late 1990s, the emerging economies of Asia experienced a series of major financial crises as evinced by widespread bank insolvencies, currency depreciations, and sharp declines in gross domestic production. This has raised important questions concerning the stability of the international financial system and caused widespread fear of the perverse impact that this financial crisis would have on other countries.

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The theory of stock market integration has received empirical attention in the literature of financial econometrics. The theory suggests that regional stock markets if integrated are more efficient than segmented ones (Click and Plummer, 2005). On the contrary, the degree of this integration has strong implication on the diversification of the international portfolio (Ibrahim, 2005). In fact, if the markets not perfectly correlated then the potential gains from the global portfolio can be realized better.

The markets globally seemed to have become more integrated with time and especially financial crises (Arshanapalli and Doukas, 1993; Francis et al., 2002; Yang et al., 2003; Abdul Majid and Kassim, 2009).

The present study has taken an attempt to analyze the short term dynamism and long run equilibrium relationships between the stock markets of Asian region. It also aims at capturing the dynamic conditional correlation between the international stock market returns to explore the scope of portfolio diversification.