A factor analysis of equity market relationships in Asia

Abstract

The equity markets of the Asian region have become a focus of attention for academic researchers interested in identifying return relationships and potential diversification benefits for international investors. In this paper, equity-return relationships are investigated for selected Asian and developed country markets. The traditional equity return correlation matrix is extended to a factor analysis to identify relationships in terms of groupings. The results indicate the existence of a developed market group that includes Hong Kong, but excludes Japan. Other results include the identification of the Philippines and Taiwan as segmented markets and a grouping of Japan and Korea.