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New political macroeconomics and international financial markets: asset pricing and the Asean process of financial integration
In order to distinguish essays and pre-prints from academic theses, we have a separate category. These are often much longer text based documents than a paper.
posted on 15.02.2017by Treisman, David Jonathan
This thesis investigates the implications of the ASEAN (Association of South East
Asian Nations) process of financial integration for international risk sharing and asset
pricing in East Asia. East Asia faces significant macroeconomic challenges posed by
the rebalancing of the global economy and through its continued reliance on the US
dollar to underpin trade and finance within the region. These challenges have made
East Asian economies susceptible to exchange-rate related balance sheet effects
arising through volatility in exchange and interest rates (or simply exchange and
interest rate risk).
Regional financial market integration provides a means with which to reduce the
implications of the region's exposure to exchange rate and interest rate risk. However,
this will necessitate the improvement of international risk sharing through greater
financial regionalism, a political economic process, which in East Asia has been
observed to be driven by ASEAN processes. As exchange rate and interest rates are
elemental sources of aggregate/macroeconomic risk in region, their dynamics and any
means designed to diminish them are expected to drive asset prices across East Asia.
On this basis, the thesis analyses how the ASEAN process of financial integration is
driving asset returns in East Asia's financial markets. To this end, the thesis utilises
new political economic frameworks and asset pricing methods to provide three
empirical studies. Each of the empirical study analyses one of three interrelated
aspects of regional financial integration: financial integration as an end-state; financial
integration as a process, and; financial integration as unification of macroeconomic
Accordingly, the thesis tests the following central hypothesis: in the period 1995-
2008, the ASEAN process of financial market integration has significantly influenced
intraregional risk sharing in the East Asia region. However, the findings made
through the analysis of these three interrelated aspects of financial integration indicate
that, ASEAN-led regional financial integration remains a viable means with which to
improve international risk sharing within East Asia. Yet, this viability is in decline as
it is being usurped by the gains offered though global-based integration.
Understanding and measuring the dynamics of the process of financial integration,
and its implications for East Asian risk sharing, have direct implications for Asian
firms. Thus, the findings made in the thesis are of importance to investors, corporate
and investment strategists and for public policy makers.
Based on its findings, the thesis identifies the markets in which competitive firms are
anticipated to create value by raising capital on the US or Singapore financial
markets. Concomitantly, the thesis indicates the markets in which competitive firms
are well positioned to exploit the opportunities provided by regional financial
integration to create value and to increase their profits over time.