Equity Market Integration and Portfolio Decisions: A Study of NASDAQ USA and MSCI Emerging Markets Asia Indexes

Ritesh Jayantibhai Patel

16 citations0/0 files storedThe journal of wealth management

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Global Financial Crisis and Policies

Abstract

This article studies market integration among the MSCI Emerging Markets Asia Index and the NASDAQ Composite Index for the United States of America (USA) with respect to the 2008 Global Financial Crisis. The study uses a three-level methodology based on short-term integration, long-term integration, and portfolio decisions. The correlation and Granger causality find short-term integration among the majority of the markets. According to the results of the cointegration test and value-at-risk (VAR) analysis, long-term integration exists among the markets in the post–Global Financial Crisis period. The outcome of the portfolio risk-return analysis indicates that investors have many portfolio options where investment diversification can yield better returns and lower levels of risk compared to investing only in the Indian market. Investors can make portfolio diversification decisions based on the integration among markets. Investors can generate better Sharpe ratios with diversification in both the pre-crisis and post-crisis periods. The government and policymakers can apply this information to draft decisions on monetary and economic policies. In addition, multinational companies can design their investment policies after considering integration among their markets. TOPICS:Mutual funds/passive investing/indexing, statistical methods, emerging markets, VAR and use of alternative risk measures of trading risk Key Findings ▪ The markets have become more integrated after the Global Financial Crisis. ▪ Investment in an international market is better than investing only in the home market. ▪ Investors can diversify their funds to other markets as the diversification can result in a better Sharpe ratio.

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References

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