ASEAN Trading Links Implementation and the

Stock Market Integration of Selected

ASEAN Countries

A Thesis Submitted to the

AMV- College of Accountancy
University of Santo Tomas

In partial fulfilment of the requirement

for the degree of Bachelor of Science in Accountancy

by
Lucero, Jon Omari
Luna, Jose Renzo
Macabeo, Cara Shahira
Malata, Mikhaela Matthew
Salvania, Marie Antoinette
March 28, 2015

2
ABSTRACT
Since much of the researches done on the ASEAN stock market integration were driven
by the various financial crises, few researches exist about the effect of the programs set by the
ASEAN committee. This thesis aims to assess the impact of the implementation of the ASEAN
Trading Link to the stock market integration of selected ASEAN countries, namely Malaysia,
Thailand, Singapore, and Philippines, by using the daily stock closing indices from January
2010 to January 2015, under local currencies and US Dollars. The indices were divided into two
periods: data from January 01, 2010 to October 15, 2012 were under the pre-implementation
period and, data from October 16, 2012 to January 31, 2015 were under the postimplementation period. The thesis employs the techniques of econometrics, which are cointegration analysis and granger causality tests, to determine the long-run relationship among
the stock markets and to identify if the past indices of one country help predict the future indices
of another. Considering only the countries that connected the ASEAN Trading Link, results
indicate that there is only short-run relationship under the two periods. However, when the
Philippines is put into picture, there is long run relationship among the four stock markets in the
pre-implementation period but dissipates after the implementation of the ASEAN Trading Link.
Inferring these results, ASEAN Trading Link could not be a factor that brings the integration
among the selected ASEAN countries. Interestingly, results also show the significant influence
of Thailand to the three countries after the implementation of the link. Moreover, bilateral
causality during the pre-implementation period shifted countries to becoming more independent
after the implementation. The long-run relationship of these stock markets is yet to come if the
initiatives to achieve a fully integrated stock market are implemented accordingly. The possibility
of concluding whether the integration will be realized cannot be manifested as of the moment.

3
ACKNOWLEDGMENTS

The researchers express their deepest gratitude to the following:

To our Almighty God, who provides them the strength in pursuing this study and the wisdom
they need in understanding and synthesizing various related studies;
To the Dean of UST-AMV College of Accountancy, Dean Patricia M. Empleo, for granting them
the right to access Eviews software and for giving them constructive suggestions in formulating
and conceptualizing thesis proposals;
To Mr. Antonio C. Cabug, who tirelessly helped and guided them in every part of this study and
for his support in finishing this undertaking;
To the College of Commerce and Business Administration, for allowing them to use Eviews as
the statistical software;
To Mr. Nestor M. Noble, who guided them in choosing the appropriate tests and in interpreting
the data;
To Ms. Bernadette L. Orias, who helped them in making this study concise, clear, and objective;
To Ms. Ma. Fluellen F. Bautista and Mr. Rogelio V. Paglomutan, who shared their knowledge in
the research field;
To Mr. Jay Peaflor, who provided them with knowledge on stocks and the ASEAN Trading Link,
and;
To their parents, relatives, friend, and classmates, for the support theyre showing in fulfilling this
work.

4
TABLE OF CONTENTS
Title Page.i
Abstract......ii
Acknowledgments...iii
Table of Contents....iv
List of Tables ......vi
List of Figures .......vii
Chapter 1: The Problem: Rationale and Background.1
Introduction.....1
Research Questions.........2
Theoretical Framework.....3
Conceptual Framework........6
Significance of the Study..8
Scope and Limitations...9
Hypotheses...10
Definition of Terms..12
Chapter 2: Review of Related Literature..15
Chapter 3: Research Methodology41
Research Design.......41

5
Population.41
Time Series Analysis..41
Data Collection Procedure....42
Research Instrument..42
Statistical Tools and Measurement..43
Chapter 4: Presentation, Interpretation and Analysis of Data..45
Unit Root Test..45
Co-integration Test.58
Granger Causality Test..60
Chapter 5: Summary of Findings, Conclusions and Recommendations..
Summary of Findings.65
Conclusions..66
Recommendations..67
Appendices..68
Appendix A: Stock Exchange Indices ..68
Appendix B: Graphs.112
Appendix C: Unit Root Tests..115
Appendix D: Co-integration Analysis...146
Appendix E: Granger Causality Tests..153
Bibliography..156

6
List of Tables
Table 1.1:

Pre-implementation ADF Unit Root Test at Level Form with Intercept under Local
Currencies

Table 1.2:

Pre-implementation ADF Unit Root Test at Level Form with Intercept under US
Dollars

Table 1.3:

Pre-implementation ADF Unit Root Test at Level Form with Trend and Intercept
under Local Currencies

Table 1.4:

Pre-implementation ADF Unit Root Test at Level Form with Trend and Intercept
under US Dollars

Table 1.5:

Pre-implementation ADF Unit Root Test at Level Form under Local Currencies

Table 1.6:

Pre-implementation ADF Unit Root Test at Level Form under US Dollars

Table 1.7:

Pre-implementation ADF Unit Root Test at First Difference Form with Intercept
under Local Currencies

Table 1.8:

Pre-implementation ADF Unit Root Test at First Difference Form with Intercept
under US Dollars

Table 1.9:

Pre-implementation ADF Unit Root Test at First Difference Form with Trend and
Intercept under Local Currencies

Table 1.10:

Pre-implementation ADF Unit Root Test at First Difference Form with Trend and
Intercept under US Dollars

Table 1.11:

Pre-implementation ADF Unit Root Test at First Difference Form under Local
Currencies

Table 1.12:

Pre-implementation ADF Unit Root Test at First Difference Form under US

Dollars

Table 1.13:

Post-implementation ADF Unit Root Test at Level Form with Intercept under
Local Currencies

7
Table 1.14:

Post-implementation ADF Unit Root Test at Level Form with Intercept under US
Dollars

Table 1.15:

Post-implementation ADF Unit Root Test at Level Form with Trend and Intercept
under Local Currencies

Table 1.16:

Post-implementation ADF Unit Root Test at Level Form with Trend and Intercept
under US Dollars

Table 1.17:

Post-implementation ADF Unit Root Test at Level Form under Local Currencies

Table 1.18:

Post-implementation ADF Unit Root Test at Level Form under US Dollars

Table 1.19:

Post-implementation ADF Unit Root Test at First Difference Form with Intercept
under Local Currencies

Table 1.20:

Post-implementation ADF Unit Root Test at Level Form with Intercept under US
Dollars

Table 1.21:

Post-implementation ADF Unit Root Test at First Difference Form with Trend and
Intercept under Local Currencies

Table 1.22:

Post-implementation ADF Unit Root Test at First Difference Form with Trend and
Intercept under US Dollars

Table 1.23:

Post-implementation ADF Unit Root Test at First Difference Form under Local
Currencies

Table 1.24:

Post-implementation ADF Unit Root Test at First Difference Form under US

Dollars

Table 2.1:

Multivariate Co-integration Test without Philippines

Table 2.2:

Multivariate Co-integration Test with Philippines

Table 3.1:

Granger causality test for the pre-implementation period

Table 3.2:

Granger causality test for the post-implementation period

8
List of Figures
Figure 1:

Elliot Wave Theory

Figure 2:

Causal interactions during the pre-implementation period.

Figure 3:

Causal interactions during the post-implementation period.