Asean market integration: the impact on capital flow and cost of capital

Abstract

The objectives of this research were as follows: 1) To analyze and compare the impacts of the SET Index on capital flow and cost of capital before and after the ASEAN market integration; 2) To identify the relationship between the SET Index and the indices of the ASEAN stock exchanges before and after ASEAN Market Integration; and 3) To find out the relationship between the SET Index and the index of the MSCI World and that of the Tokyo Stock Exchange before and after the ASEAN market integration. The data for the correlation study were the indices of the period before the SET entering the ASEAN market integration ( October 15, 2007 until October 14, 2012) and the period after the SET joining the ASEAN market integration (October 15, 2012 until August 31, 2016) . The data for the study of the effects on capital flow and cost of capital came from the SET Index, the MSCI daily return Index, and the foreign portfolio investment of the periods prior to the SET entering the ASEAN market integration (from October 15, 2007 through October 14, 2012) and after the SET joining the ASEAN market integration ( from October 15, 2012 through August 31, 2016). The results of the data analysis by Vector Auto Regression and Vector Error Correction Model showed that the SET Index could significantly explain the change in capital flow and cost of capital In contrast, the integration of the ASEAN stock exchanges was not found to affect the ability to explain the change of capital flow or the cost of capital. The finding concerning the relationship between the SET Index and the other ASEAN indices ( including the MSCI World Index and the Tokyo Stock Index) showed that after the ASEAN market integration, the SET Index was able to explain the change of every index in the region when compared to the change in the period before the ASEAN market integration. The recommendations on policy implementations are 1) the net capital flow transactions in the stock exchange should be inspected and controlled to bring about the stabilization of the baht currency exchange rates and 2) The private enterprises sector should be encouraged to seeking market expansion within the ASEAN by raising funds in those exchange markets and, 3) Cooperation among ASEAN stock exchanges should be enhanced to achieve stability and to increase incentives for investment on regional and international investors.