A Different View on ASEAN Capital Market Integration

Round 1

Reviewer 1 Report

At the beginning of the review, I want to appreciate the topic and method chosen to analyze it. As also stated in the paper, Wavelet analysis has not yet been widely used in the context of capital market integration. I consider this originality and modern approach to be a great added value to the work. The elaboration of the theoretical part and the literature review is at a high level, a number of current studies are used and it is also sufficiently detailed.

I have some minor and some more fundamental comments on the reviewed paper:

1. Please check lines 106 and 137 (broken hyperlinks).

2. In the introduction there are recurring sentences: 
"Unfortunately, this method is still relatively rarely used in predicting the level of capital market integration." (lines 54 - 55) / "This analysis rarely been done in term of capital market integration." (lines 59 - 60)
"The Wavelet approach allows the researchers to examine the behavior of time series along with frequency and space-time." (lines 49 - 50) / "The Wavelet approach allows the researchers to examine the behavior of time series along with frequency and spacetime." (lines 61 - 62)

3. The title of the third chapter is at the end of the page. (lines 148 - 149)

4. Sometimes Wavelet/wavelet analysis is given with a capital letter, sometimes with a lowercase letter, it is necessary to unify it.

5. The figures on page 6 are not of sufficient quality.

6. The scalogram does not have axis labels. There are obviously years on the x-axis, but what is on the y-axis? The value of R²_xy (r, s), which cannot be negative (indicator on the y-axis is negative) or φ_xy or something else?

7. List the software and packages used in the analysis and cite them correctly.

8. The analysis is quite brief in comparison with the theoretical part of the work, I lack a more detailed discussion of the results.

 

Author Response

We highlight our changes in green colour
1. Please check lines 106 and 137 (broken hyperlinks).

Response: We remove the hyperlinks.

2. In the introduction there are recurring sentences: 
   "Unfortunately, this method is still relatively rarely used in predicting the level of capital market integration."(lines 54 - 55) / "This analysis rarely been done in term of capital market integration."(lines 59 - 60)
   "The Wavelet approach allows the researchers to examine the behavior of time series along with frequency and space-time." (lines 49 - 50) / "The Wavelet approach allows the researchers to examine the behavior of time series along with frequency and spacetime." (lines 61 - 62)

Response: We delete "This analysis rarely been done in term of capital market integration." (lines 59 - 60)
 and delete "The Wavelet approach allows the researchers to examine the behavior of time series along with frequency and spacetime." (lines 61 - 62)

3. The title of the third chapter is at the end of the page. (lines 148 - 149)

Response: We revise it.

4. Sometimes Wavelet/wavelet analysis is given with a capital letter, sometimes with a lowercase letter, it is necessary to unify it.

Response: We revise it.

5. The figures on page 6 are not of sufficient quality.

Response: We cannot enhance its quality, because the figures produced by Mathlab Program

6. The scalogram does not have axis labels. There are obviously years on the x-axis, but what is on the y-axis? The value of R²_xy (r, s), which cannot be negative (indicator on the y-axis is negative) or φ_xyor something else?

Response: The figures produced by Mathlab Program

7. List the software and packages used in the analysis and cite them correctly.

Response: We using Mathlab Program

8. The analysis is quite brief in comparison with the theoretical part of the work, I lack a more detailed discussion of the results.

Response: We add several explanation and discussion in this section.

Author Response File: Author Response.pdf

Reviewer 2 Report

This paper endeavors to study the integration of the ASEAN capital markets by using a different approach (the wavelet analysis) than other studies connected with these markets. The results show an increased integration during 2008-2010. 

I think this topic is interesting and offers great opportunities for research. However, I consider that some aspects of the paper should be taken into consideration to improve the study.

1. Introduction:

More details should be provided to highlight the importance of the subject. What does it mean to have integrated or non-integrated stock markets? Why is this important to know? Does it change trading patterns, investing strategies? In a similar manner, the advantages of using the wavelet analysis should be highlighted. Why is it a better methodology?

Also, I consider that details about the results obtained in this paper should be included in the Introduction and the conclusions that can be made based on them.

Additionally, this section, in my opinion, should also include comments about the usefulness of the papers. Who could be interested in the findings (academics, researchers, investors, market regulators, etc)? How does the paper influence their activity?

2. Data:

This section is very short. I consider that it should include more details about the database that was used in the study. It should specify directly what countries were studied, not only mentioning they are the ASEAN markets. How many countries are included? Which stock index was considered for each market (sometimes markets define more than one index)? Also, I think that some basic descriptive statics should be provided (minimum, maximum, average, median, standard deviation, etc.) and some comments should be made based on them.

3.Analysis technique

This section is very general. At the very least, I think that all the notations used in the equations should be explained. Is this methodology used to study the integration between each two countries in the database or are they seen as a whole region and the tests study the cointegration of the region with another region?

4. Results and discussion

Given than, before this point, the need to perform some test before the wavelet analysis is not mentioned, I think it would be best if some additional details are give. What is the importance of the Augmented Dickey Fuller and the Johansen cointegration analysis for the wavelet analysis? 

The abbreviations used in Table 1 should be explained (JCI, STI, SET, PSEI and KLCI).

The results of the wavelet analysis are briefly presented. I consider that additional details should be provided. What are the financial implications for the low level of cointegration? Additionally, do the results show that some markets are more cointegrated than others?

The authors state that " the highest [...] level of integration is seen  in the range of 2008 to 2010 or during the period of the global financial crisis". Given that academic literature provides various methods to define the crisis period and that the global crisis has impacted countries at different times, it would be helpful to mention what period was considered as the period of the global financial crisis and how it was determined.

5. Conclusions

I think that it would be helpful if this section is also expanded by including details about the importance of this topic and the usefulness of the study. More details about the obtained results and their financial implications could be provided in order to highlight the impact of the paper.  Additionally, I suggest to provide a more detailed presentation of the limitations of the study and of the other future possible directions of research.

 

Throughout the paper, there are some inconsistencies about the scope of the analysis. At times, it is stated the the purpose is the study the integration of the ASEAN markets (e.g. the title) and, in other times, the purpose is to study the integration of the Indonesian capital market with other ASEAN markets. Please revise or explain why the focus is on the Indonesian market.

Furthermore, there are some significant English problems throughout the paper. I also send the pdf version of the paper with the comments I made for some of these problems. Please endeavor to correct these.

 

Comments for author File: Comments.pdf

Author Response

We highlight our changes in yellow colour

1. Introduction:

More details should be provided to highlight the importance of the subject. What does it mean to have integrated or non-integrated stock markets? Why is this important to know? Does it change trading patterns, investing strategies? In a similar manner, the advantages of using the wavelet analysis should be highlighted. Why is it a better methodology?

Also, I consider that details about the results obtained in this paper should be included in the Introduction and the conclusions that can be made based on them.

Additionally, this section, in my opinion, should also include comments about the usefulness of the papers. Who could be interested in the findings (academics, researchers, investors, market regulators, etc)? How does the paper influence their activity?

Response: we add paragraph as follows:

By using this analysis, this study hopefully could fill some gaps occurred in previous studies such as Palac-McMiken (1997); Kim and McKenzie (2008); Muharam et al. (2020); Roca et al. (1998). The result of this study shows that long-term integration in the capital markets of ASEAN countries still exist, while the highest level of integration is in the period during and about a year after the global crisis (2008-2009). Hopefully this study can sharpen the previous studies’ findings regarding ASEAN capital market integration and help some researchers, practitioners and authorities to gain more insight and formulate some policy to cope with issues studied.

2. Data:

This section is very short. I consider that it should include more details about the database that was used in the study. It should specify directly what countries were studied, not only mentioning they are the ASEAN markets. How many countries are included? Which stock index was considered for each market (sometimes markets define more than one index)? Also, I think that some basic descriptive statics should be provided (minimum, maximum, average, median, standard deviation, etc.) and some comments should be made based on them.

Response: we add several paragraph in data section as follows:

This study uses the stock price index for the monthly closing data of ASEAN capital markets such as Jakarta Composite Index (JCI) from Indonesia Stock Exchange (IDX), Strait Times Index (STI) from Singapore Stock Exchange (SSX), Kuala Lumpur Composite Index (KLCI) from Kuala Lumpur Stock Exchange (KLSE), SET Index (SETi) from Stock Exchange Thailand (SET) and Philippines Stock Exchange Index (PSEi) from Philippines Stock Exchange (PSE) during the period of January 1999 to December 2020. The monthly closing of stock index data for JCI, STI, KLCI, SETi and PSEi were obtained from Bloomberg.

We also add descriptive statistics.

3.Analysis technique

This section is very general. At the very least, I think that all the notations used in the equations should be explained. Is this methodology used to study the integration between each two countries in the database or are they seen as a whole region and the tests study the cointegration of the region with another region?

Response: we add notations needed. The Wavelet could analyze the whole data of the region.

4. Results and discussion

Given than, before this point, the need to perform some test before the wavelet analysis is not mentioned, I think it would be best if some additional details are give. What is the importance of the Augmented Dickey Fuller and the Johansen cointegration analysis for the wavelet analysis? 

The abbreviations used in Table 1 should be explained (JCI, STI, SET, PSEI and KLCI).

The results of the wavelet analysis are briefly presented. I consider that additional details should be provided. What are the financial implications for the low level of cointegration? Additionally, do the results show that some markets are more cointegrated than others?

The authors state that " the highest [...] level of integration is seen in the range of 2008 to 2010 or during the period of the global financial crisis". Given that academic literature provides various methods to define the crisis period and that the global crisis has impacted countries at different times, it would be helpful to mention what period was considered as the period of the global financial crisis and how it was determined.

Response:The ADF is very important to wavelet. So we give some explanation as follows:

Wavelet analysis is a sophisticated analysis that needs some pre-testing steps. Before performing the wavelet analysis, the unit root test was first performed with Augmented Dickey-Fuller statistical test and Johansen cointegration analysis. Kumar and Ajaz (2019) also Robiyanto and Ernayani (2018) stated that this was done for the long-term cointegration of the capital market under the study.

Wavelet analysis requires no unit root found in the variables used and will be better if a long-term cointegration exists.

5. Conclusions

I think that it would be helpful if this section is also expanded by including details about the importance of this topic and the usefulness of the study. More details about the obtained results and their financial implications could be provided in order to highlight the impact of the paper.  Additionally, I suggest to provide a more detailed presentation of the limitations of the study and of the other future possible directions of research.

Throughout the paper, there are some inconsistencies about the scope of the analysis. At times, it is stated the the purpose is the study the integration of the ASEAN markets (e.g. the title) and, in other times, the purpose is to study the integration of the Indonesian capital market with other ASEAN markets. Please revise or explain why the focus is on the Indonesian market.

Furthermore, there are some significant English problems throughout the paper. I also send the pdf version of the paper with the comments I made for some of these problems. Please endeavor to correct these.

Response:

Thank you so much, we revise this manuscript according your suggestions. This study is about the integration of the ASEAN markets

Author Response File: Author Response.pdf

Reviewer 3 Report

The integration of financial markets is still an important and interesting issue. The Author(s) limit their research to the ASEAN capital markets and conduct analysis based on the wavelet method.

Major comments:

1. Author(s) should clarify the abbreviation ASEAN.
2. Author(s) examine the integration of the whole group of markets but in Abstract and Conclusion they write about "the integration of Indonesian capital market with capital markets in ASEAN" which is not justified. The method used in this research explores the group integration. 
3. All symbols used in formulae (line 167, 179) should be explained.
4. Not enough details about used data. There is no information on which specific indexes were used.
5. What means "Level" in the Table 1?
6. What is: JCI, STI, SET, PSEI, KLCI (Variable column) in Table 1? 
7. No information about used software.

Author Response

We highlight our changes in blue colour

Major comments:

1. Author(s) should clarify the abbreviation ASEAN.

Response:

We add the abbreviation ASEAN in abstract

2. Author(s) examine the integration of the whole group of markets but in Abstract and Conclusion they write about "the integration of Indonesian capital market with capital markets in ASEAN" which is not justified. The method used in this research explores the group integration. 

Response:

We revise as This study uses the wavelet analysis to examine the integration of capital markets in ASEAN performed using Wavelet Multiple Correlation (WMC) and Spectrum analysis.

3. All symbols used in formulae (line 167, 179) should be explained.

Response:

We revise it according suggestions

4. Not enough details about used data. There is no information on which specific indexes were used.

Response:

Jakarta Composite Index (JCI) from Indonesia Stock Exchange (IDX), Strait Times Index (STI) from Singapore Stock Exchange (SSX), Kuala Lumpur Composite Index (KLCI) from Kuala Lumpur Stock Exchange (KLSE), SET Index (SETi) from Stock Exchange Thailand (SET) and Philippines Stock Exchange Index (PSEi) from Philippines Stock Exchange (PSE)

 

5. What means "Level" in the Table 1?

Response:

level refers to the order of integration in unit root test

 

6. What is: JCI, STI, SET, PSEI, KLCI (Variable column) in Table 1? 

Response:

Jakarta Composite Index (JCI) from Indonesia Stock Exchange (IDX), Strait Times Index (STI) from Singapore Stock Exchange (SSX), Kuala Lumpur Composite Index (KLCI) from Kuala Lumpur Stock Exchange (KLSE), SET Index (SETi) from Stock Exchange Thailand (SET) and Philippines Stock Exchange Index (PSEi) from Philippines Stock Exchange (PSE)

7. No information about used software.

Response:

We add Wavelet analysis in this study conducted by using the MATLAB Software.

 

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

I consider that the authors have greatly improved the quality of the paper. There are still some minor formating erros that have to be corrected. For example:

-The title of Table 1 I assume should be linked to Descriptive statistics

- In the first paragraph from the Conclusion section, in the last sentence, there are some minor problems (missing words).