The Relationship between the U.S. and Four Asian Stock Markets

Conventional wisdom among academic researchers suggests that there is a high degree of independence between equity returns in the United States and those in other countries. However, practitioners often suggest that other markets tend to be strongly influenced by the behaviour of the U.S. market. This paper examines the day-to-day linkages between equity returns in the United States and those in four Asian equity markets, showing a significant tendency for these Asian markets to follow the U.S. markets on a day-to-day basis. Secondly, the paper examines whether the well-known negative Monday effect in the U.S. concurs with a negative Tuesday effect in the Asian markets and finds evidence of this tendency. Finally, evidence is presented to show that the Asian markets studied exhibit a weekend effect similar to the effect consistently observed in the United States. The paper concludes that there are significant tendencies towards day-to-day linkages between stock price behaviour in the United States and stock price behaviour in Hong Kong, Singapore, Malaysia, and the Philippines, and that the day of the week effect observed in the United States also occurs in these Asian markets.