This paper examines the stock market integration in ASEAN-FIVE consisting of Indonesia, Malaysia, Philippines, Singapore and Thailand plus China. In this study we employ Johansen and Juselius model of multivariate co-integration procedures and to use daily data from 2 January 2003 to 31 Juni 2008 to test whether there is market integration or not. In particular, this paper considers whether the ASEAN-FIVE plus China stock markets were co-integrating vector, leaving four common trends among the five variables. We therefore conclude that ASEAN-FIVE plus China stock markets were integrated in the economic sense, but that is for from complete. Initiatives to further integrate the stock markets for the policy makers were feasible and desirable in ASEAN-FIVE and China for the efficiency in transaction cost and sustainability over the financial crisis. From the perspective of the international portfolio investor, benefits of international portfolio diversification across the five markets in ASEAN-FIVE and China were reduced slightly but not eliminated.
Keywords: stock market integration, co-integration and portofolio diversification.
