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This study investigates the financial integration among the Regional Comprehensive Economic Partnership (RCEP) countries which comprises ASEAN member countries and 6 nonASEAN countries (India, China, Republic of Korea, Japan, Australia and New Zealand). It examines the co-movements of stock market and foreign exchange market at three levels: among ASEAN members; among non-ASEAN RCEP economies, viz., India, China, Republic of Korea, Japan, Australia and New Zealand; and among all RCEP (i.e., ASEAN + 6) economies as a congregation. The strength of the study is that it employs advanced econometric techniques such as Gregory-Hansen cointegration test and multivariate DCC GARCH model. In case of stock indices, it is found that there is no cointegration both among ASEAN economies as well as among non-ASEAN RCEP economies. However, when they are combined to form RCEP, exhibited a cointegration equation. In terms of exchange rate, there is evident cointegration among ASEAN economies as well as among non-ASEAN RCEP economies, but there exists no cointegration within RCEP.
Key Words: Asia-Pacific, RCEP, ASEAN, Financial integration, India, China
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INTRODUCTION
Financial integration of the Regional Comprehensive Economic Partnership (RCEP), a congregation of US$17 trillion in size launched in 2012, is a key policy concern for the region. RCEP is a trade agreement being negotiated among the ten member Association of Southeast Asian Nations (ASEAN) bloc and its six trading partners with whom ASEAN has a Free Trade Agreement (FTA). Hence, it is known as ASEAN+6 and includes besides ASEAN countries, China, India, Japan, Korea, Australia and New Zealand. In 2012, The "Guiding Principles and Objectives for Negotiating the RCEP" were adopted. It called enhancing the negotiating countries' engagement in regional and global supply chains, and owing to this, assessing the financial integration among them acquires importance. The level and significance of financial integration and gains from it including enhanced capital flows and mobility, across various regions and economic congregations has been widely studied (Demyanyk and Volosovych, 2008; Agyei Ampomah, 2011; Boubakri, Couharde and Guillaumin, 2012; Alexakis and Vasila, 2013; and Gan, 2014). Lewis (2013) and Panda (2014) tried to factor down the role of the Trans-Pacific Partnership (TPP) and RCEP on deepening of the economic integration of Asia-Pacific region. Cheong and Tongzon (2013), and Hamanaka (2014) studied the...