13 Capitalmarket

© 2019 IJRAR June 2019, Volume 6, Issue 2 www.ijrar.
org (E-ISSN 2348-1269, P- ISSN 2349-5138)
Impact of Financial Globalization on the Capital

Markets of South-East Asian Economies: A
Comparative Study of India, Indonesia & Philippines
Srinibash Dash*
*Assistant Professor, School of Commerce & Management Studies, Gangadhar Meher University, Amruta Vihar,
Sambalpur-768004, Odisha, India.
ORCID
Srinibash Dash: https://orcid.org/0000-0002-0824-1445
Running title: Capital Markets of South-East Asian Economies

Acknowledgment
The Corresponding authors is highly obliged to the Sudhanshu Sekhar Rath, Ex-Vice Chanceller, Gangadhar
Meher University, Amruta Vihar, Sambalpur – 768 004, Odisha, India for his support, encouragement and right
supervision.
Abstract
Financial globalizations of the late 20th century have major implications as far as stock markets and bond markets of
developing countries are concerned. The East-Asian countries are no exceptions. A quantitative study involving suitable
scaling techniques and t-test clearly showcases the significant effects of globalized financial flows on capital markets of India,
Indonesia and Philippines. This empirical analysis reveals that the volatility in both equity markets and bond markets have
been clearly visible with relative degrees of variations among the countries under study. The volatility and financial fluctuations
in the East Asian capital markets have significant backward and forward linkage effects for investors, fund managers and
policy makers as well.
Keywords: Financial Globalization, Equity Returns, Bond Returns, Volatility,
IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 231

© 2019 IJRAR June 2019, Volume 6, Issue 2 www.ijrar.org (E-ISSN 2348-1269, P- ISSN 2349-5138)
1. Introduction:
The buzzword ‘Globalization’ represents the free flow of capital, technology and management practices
across the globe. It is the flow of capital & corporate investment between various countries, world allocation of
money leading to exchange of services & goods. The recent wave of financial globalization that has occurred since
the mid-1980s has been marked by a surge in capital flows among industrial countries & more notably between
industrial & developing countries. Although capital inflows have been associated with high growth rates in some
developing countries, a number of them also experienced periodic collapses in growth rates & significant financial
crises that have had substantial macroeconomic & social costs.
Apart from deregulation of the domestic economy, the objective was to increasingly integrate the Indian
economy with the world economy, that is, to globalize the Indian economy. The setting up of a road map for capital
account liberalization in India (RBI, 2006), sequenced with other institutional policy measures, resulted in
significant trade and financial flows in conjunction with other emerging market economies of Southeast Asia.
India’s economic performance has continued to be impressive since 2001–2008 and real GDP growth has been
particularly rapid since 2003–04, averaging 7.2 per cent during 2000–08, with 9.6 per cent and 8.7 per cent growth
in 2006–07 and 2007–08, respectively. This performance is largely due to unilateral trade and structural reforms.
Rapid economic growth has also resulted in an improvement in social indicators such as poverty and infant
mortality. It has been observed that trade openness is correlated with financial market.
Financial globalization has played a crucial role in the development and growth of the Southeast Asian
Economies. As an outcome of this, the liberalization of different sectors, markets have taken place. Most of the
Southeast Asian Economies liberalized in between 1980’s -1990’s. Liberalization of capital market is one of them.
Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. A
capital market is not a compact unit, but a highly decentralized system made up of two major parts:
(1) Stock market.
(2) Bond market.
Specifically in the Indian context, the paradigm shift towards liberalization started in 1991 following the
balance-of-payments crisis, and was carried forward by several policy measures undertaken in response to the crisis.
The broad approach to external sector reform was laid out in the report of the High-level Committee on Balance of
Payments in 1993. The devaluation of the rupee in July 1991 and the subsequent transition to the market-based
exchange rate regime constituted an important aspect of the open trade policy regime. Reforms also sought the
elimination of quantitative restrictions on imports (barring a few sensitive items) and a drastic reduction in customs
duties. With a distinct change in the overall policy stance, the reforms marked a shift in emphasis from import
substitution to export promotion, moving away from direct subsidies to indirect promotional measures.

1.1. Liberalization in India:
Due to the Liberalization of the external sector in India since 1991, the external payment crisis that India
witnessed in 1991 called for management of the external sector reforms. These included a market-based exchange
rate system, introduction of convertibility of the rupee for external transactions on the current account, and a
compositional shift in cross border capital inflows from debt-creating to non-debt-creating flows. A cautious
approach was followed in respect of debt-creating external capital inflows, especially those with short-term
maturity, in addition to reducing the volatile component of non-resident Indian (NRI) deposits and the flow of
external assistance. In the 1990s, for the first time, a strategic external debt management policy was put in place,
emphasizing compositional aspects, cost, maturity, end use, transparency and risk management. The overall
prudential approach was integrated into the process of growing openness and financial liberalization, which were
basic elements of the package of structural reforms. Quantitative annual ceilings on external commercial borrowing
(ECB), along with maturity and end-use restrictions, broadly shaped the ECB policy.
FDI is encouraged through a very liberal but dual route: a progressively expanding automatic route and a case-
by-case route. Portfolio Investments are restricted to selected players, particularly approved institutional investors
and NRIs. Indian companies are also permitted to access international markets through Global Depository
Receipts/American Depository Receipts (GDRs/ADRs) under an automatic route, subject to specified guidelines.
Foreign investment in the form of Indian joint ventures abroad is also permitted. Restrictions on outflows involving
Indian corporate, banks and those who earn foreign exchange (Like exporters) have also been liberalized over time,
subject to certain prudential guidelines. As a result of pursuing the above approach, India has attracted considerable
private flows, primarily in the form of FDI, portfolio investment, and NRI deposits. Consequently, managing the
surplus also became a challenge in the management of the capital account.
The policy for reserve management is built upon a host of identifiable factors and others contingencies.
Similarly, the Indian securities market is increasingly integrated with the rest of the world. Indian companies have
been permitted to raise resources from abroad through the issue of ADRs, GDRs, Foreign Currency Convertible
Bonds (FCCBs) and ECBs. Foreign companies are also allowed to tap the domestic stock markets.
FIIs have been permitted to invest in all types of securities including government securities. The Indian
stock exchanges have been allowed to set up trading terminals abroad. The trading platforms of Indian exchanges
are now accessed through the internet from anywhere in the world. The Reserve Bank of India (RBI) permitted two-
way visibility for ADRs/GDRs, which meant that investors (foreign institutional or domestic) who hold
ADRs/GDRs can cancel them with the depository and sell the underlying shares in the market.
2. The rationale of the Study:
The study has been undertaken with the broad objective to detect empirical evidences whether there has been
significant improvement in key economic indicators of Southeast Asian economies after the financial globalization
programmes implemented in the developing economies. The main objectives of study describe the volatility of
Southeast Asian stock market as well as bond market after the financial globalization implemented. Other objective
of the study is to measure the fluctuations in capital market within the South-east Asian countries (India, Indonesia,
Philippines).
3. A Theoretical Analysis through the Review of Literature:
A literature review is an evaluative report of information found in the literature related to the selected area of
study. The review should describe summaries, evaluate and clarify this literature. It should give a theoretical base
for the research and help the author to determine the nature of the research. The purpose of a literature review is to:
establish a theoretical framework for the topic / subject area. Define key terms, definitions and terminology. Identify
studies, models, case studies etc supporting the topic.
4. Research Design:
Research design is a framework or guide used for the planning, implementation and analysis of the study. It
is a systematic plan of what is to be done, how it will be done, and how the data will be analyzed. It includes the
description of the research approaches, dependent & independent variables, sampling designed and planning format
for data collection, analysis and presentation. The Research is conclusive in nature and experimental hypothesis
have been used to analyze the impact of financial globalization on India, Indonesia & Philippines.
4.1 Research Questions:
As a research question is the fundamental core of a research project, study, or review of literature, the study
determines the methodology, and guides all stages of inquiry, analysis, and reporting.
 Is there any favourable benefits realized in the East Asian capital markets caused by financial globalization?
 What is the nature of volatility in the East Asian capital markets after globalization of finance?
 The plausible research question in this project is , which East Asian capital market is better for investors to
invest their money in?
4.2. Research Objective:
Research objective is the description of what is to be achieved by the study in this project.
 To understand and portrait the nature of volatility in Southeast Asian capital markets that consists of the
stock markets and the bond markets.
 To measure the financial fluctuations in East Asian capital markets that includes the stock markets and the
bond markets.
 Another objective of the study is to measure the fluctuations in capital markets within the Southeast Asian
countries (India, Indonesia, Philippines).
4.3. Scaling Technique:
Scaling is the process of assigning numbers to various degrees of attitudes, preferences, opinion, and other
concepts. Scaling is defined as a procedure for the assignment of numbers (or other symbols) to a property of
objects in order to impart some of the characteristics of numbers to the properties in question.
Measurement scales are used to categorize and/or quantify variables. The four scales of measurements that are
commonly used in statistical analysis: nominal, ordinal, interval, and ratio scales. In this study, we have used ratio
scale and this technique is used in our proposed study because ratio scale provides accurate result of volatile prices
in stock market price indices and bond market price indices of East Asian capital markets, that consists of the three
countries (India, Indonesia, Philippines)
4.4. Statistical Tools:
For calculation of volatility of stock price index, PPG bonds, portfolio investment bond on India, Indonesia &
Philippines, Least Square Method, and Correlation & Student t test is applied. For calculation of the fluctuations of
stock prices, PPG bonds, Portfolio Equity investments we have considered selected countries of India, Indonesia,
and Philippines. In this research, Hypothesis testing has been taken into consideration.
 Correlation Analysis and the method of Ordinary Least Squares (OLS). These statistical tools are used to
know the relationship between the stock market indices and bond market indices and also used t statistics to
know the variance.
 Further, we have used OLS which stands for ordinary least squares, the standard linear regression procedure.
In our proposed study, we have taken two parameters for comparing the variance between the actual returns
and trend values.
 Formula: Y= xb+e
 Where,
 Y is the dependent variable
 X is the independent variable
 b= variable of parameters to be estimated.
 e= errors factor which means that make zero the equations equal
 Correlation: Correlation is a statistical measure that indicates the extent to which two or more variables
fluctuate together. A positive correlation indicates the extent to which those variables increase or decrease in
parallel; a negative correlation indicates the extent to which one variable increases as the other decreases.
 Log: log means a numbers of exponent to which another fixed value, the base, must be raised to produce
that number. In my project how much effect on south East Asian economies of the countries.
Formula: = ).
 Trend value: I am using Trend model (analyzing the stock returns and actual affect on my selected
countries) for generating forecast. For my learning purpose I have created 18 years quarterly average returns
of stock, equity and bond price. The data from1997 to 2015.
4.5. Testing of Hypothesis:
Hypothesis testing is a process by which an analyst tests a statistical hypothesis. The methodology
employed by the analyst depends on the nature of the data used, and the goals of the analysis. The goal is to
either accept or reject the null hypothesis.
Ho (Null Hypothesis): There is no significant difference between the actual stock price, bond price, portfolio
equity investment and trend value.
H₁ (Alternative Hypothesis): There is significant difference between the actual stock price, bond price,
portfolio equity investment and trend value.

5. 1 India: A Long Way Ahead:
Table:5.1.Serial Correlation
Countries Lag1 Lag2 Lag3 Lag4
India 0.278026 0.01351 -0.0905 -0.1078
Indonesia 0.388602 0.15412 0.14076 -0.1741
Philippines 0.335685 0.11926 0.0994 0.16775
Source: Secondary Data
The above table is represented in graph, as follows: From the analysis of correlation we have created lags on
the basis of quarters and computed the correlation coefficients. It has been established that in most of the cases the
correlation coefficient is merging to zero within two lags, but it is not valid in case of Indonesia and Philippines. It
means that the capital markets of Indonesia and Philippines are comparatively more affected by their previous lags.
It implies that any shocks in these two markets occur then it would take longer period of time to be nullified.
Figure: 5.1. Models Showing Trend & Actual Price Index Returns
The above model showing the ‘x-axis’s is trend value and ‘y’-axis’ actual price index of three countries;
India, Indonesia, and Philippines and all three graphs (5.1, 5.2., and 5.3.) Shows that the trend and the actual value
are fluctuating the error graph indicate the more volatile price index return. Above the graph showing that India is
more volatile as compared to remaining two countries.
Figure: 5.2. Error of the Model Constructed for Price Indexed Returns

The above graph presented the error of the model constructed for price index returns of three countries;
India, Indonesia, and Philippines and all three graphs. We found more error because of volatility of the capital
markets. Above the graph showing that India has a more peak point that indicates the volatility of the price index.
At last we can conclude that volatility is more and error is also more as compared to remaining two countries
(Indonesia and Philippines).
Figure: 5.3. Model Showing Trend & Actual Equity Returns
The above model showing the actual equity return and trend return of the three countries i. e. India,
Indonesia, Philippines. In this model there are three graph plotted, it shows that Indonesia is highly fluctuated on
equity return price, it means more highly risk bearing by the investors. Other two countries cases are no more
volatile as compared to Indonesia’s equity market.
Figure: 5.4. Error of the Model Constructed for Equity Returns
The above model is showing that the error for the equity return and trend return of the three countries i: e India,
Indonesia, Philippines. In this model there are three graph plotted, it shows that in the case of India in the last few
years we found the equity return price having maximum error .It means, it indicates that the highly error factor
shows more variance between actual and trend value.

Figure: 5.5. Model Showing Trend & Actual Bond Returns
The above three graph presented trend and actual bond returns of the three countries; India, Indonesia, and
Philippines and all three graphs. It has been showing that India and Indonesia have registered more volatility in
bond markets.
Figure: 5.6. Error of the Model Constructed for Bond Returns
The above model is showing that the error model actual trend and bond return of the three countries i. e.
India, Indonesia, Philippines. In this model there are three graph plotted, it shows that Indonesia have more error.
That means, it indicates that the highly error factor model means more variance between actual and trend value.

5.2. Stock returns of Countries:
Table: 5.2. Average stock returns of India.
Returns Trend Value
Mean 11558.73207 2055936.614
Variance 60653362.46 2.68059E+14
Observations 76 76
Pearson Correlation -0.05276492
Hypothesized Mean Difference 0
Df 75
t Stat -1.088532876
P(T<=t) one-tail 0.139922733
t Critical one-tail 1.665425374
P(T<=t) two-tail 0.279845466
t Critical two-tail 1.992102124
The above table value of t- critical is 1.992102124 where as the calculated t- statistical value is -
1.088532876 which falls under the acceptance region. Therefore, no significant difference between actual returns
and the trend returns.
Table: 5.3. Average stock returns of Indonesia.

Returns Trend Value
Mean 25.72433799 0.260670738
Variance 204.2854966 1290837.213
Observations 76 76
Pearson Correlation 0.805499074
Df 75
t Stat 0.197379911
P(T<=t) one-tail 0.422032101
P(T<=t) two-tail 0.844064203
Table no.5.3 presented above shows that the student t-test of average stock returns of Indonesia represents
the statistical t-test value as 0.197379911 and the t- critical value is 1.992102124. It means, the calculated t- value is
less than the t- critical value. Hence, it is concluded that there is a significant difference between the average stock
returns and trend values and hence, null hypothesis is rejected and alternative hypothesis is accepted.

Table: 5.4. Average stock returns of Philippines.
Returns Trend Value
Mean 587019776.6 9.329431502
Variance 4.90931E+17 3.39503E+16
Observations 19 19
Pearson Correlation -0.204205468
Df 18
t Stat 3.366767442
P(T<=t) one-tail 0.001717568
P(T<=t) two-tail 0.003435137
5.3. Portfolio Equity Investment of India/ Indonesia/ Philippines:
Table no.5.5 shows that the student t-test of portfolio equity investment of India represents the t-test value as
-3.812122501 and the t- critical value is 2.068657599. As a result the null hypothesis is accepted. It means there are
no significant differences of equity portfolio investment.
Table: 5.5. Portfolio Equity Investment of the India
Returns Trend Value
Mean 7765803019 2.41568E+18
Variance 1.28095E+20 9.63735E+36
Observations 24 24
Df 23
t Stat -3.812122501
P(T<=t) one-tail 0.000447985
P(T<=t) two-tail 0.00089597
A deeper look at the table no.5.6 shows that the student t-test of portfolio equity investment of Indonesia
represents a statistical t-test value of 4.770063848 and the t- critical value is 2.004879275. Hence, the null
hypothesis is accepted. It means there are no significant differences of equity portfolio investment.

Table: 5.6. Portfolio Equity Investment of the Indonesia
Returns Trend Value
Mean 2329982382 10.74239713
Variance 1.73493E+19 4.22668E+18
Observations 55 55
Df 54
t Stat 4.770063848
P(T<=t) one-tail 7.19255E-06
P(T<=t) two-tail 1.43851E-05
Coming back to the table no.5.7 indicates that the student t-test of portfolio equity investment of
Philippines, which is the t-test value, is 5.913503791 and the t- critical value is 2.015367547. Hence, the null
hypothesis is accepted. It means there are no significant differences of equity portfolio investment.
Table: 5.7. Portfolio Equity Investment of the Philippines
Returns Trend Value
Mean 838745400 22.37756373
Variance 1.48477E+18 5.79486E+17
Observations 45 45
Df 44
t Stat 5.913503791
P(T<=t) one-tail 2.2608E-07
P(T<=t) two-tail 4.52159E-07
5.4. PPG Bonds of the India/ Indonesia/ Philippines:

A look at the table no.5.8 shows the student t-test of PPG bonds of India. The statistical t-test value is -
4.298653134 and the t- critical value is 2.036933334 and hence, the null hypothesis is rejected which means that
there are effects on ppg bond markets of India, and there is a significant difference between PPG actual bonds
returns and trend returns of PPG bonds.

Table: 5.8. PPG Bonds of the India
Returns Trend Value
Mean 2072215333 3.50571E+17
Variance 3.006E+19 2.19483E+35
Observations 33 33
Df 32
t Stat -4.298653134
P(T<=t) one-tail 7.51497E-05
P(T<=t) two-tail 0.000150299
The table no.5.9 shows the student t-test of PPG bonds of Indonesia. The statistical t-test value is 3.1496484
and the t- critical value is 2.00487932 and hence, here the null hypothesis is accepted. It implies that there are no
effects on PPG bond markets of Indonesia and so there is no significant difference between PPG actual bonds
Table: 5.9. PPG Bonds of Indonesia
Returns Trend Value
Mean 266153564 6.2424077
Variance 4.314E+17 3.863E+16
Observations 55 55
Df 54
t Stat 3.1496484
P(T<=t) one-tail 0.0013319
P(T<=t) two-tail 0.0026638
A visit of the table no.5.9 shows the student t-test of PPG bonds of Philippines. The statistical t-test value is
1.585727846 and the t- critical value is 2.004044769 and therefore, the null hypothesis is rejected. It implies that
there are effects on PPG bond markets of Indonesia, and there is a significant difference between PPG actual bonds

Table: 5.10. PPG Bond of Philippines
Returns Trend Value
Mean 756684607.1 549608687.4
Variance 1.25174E+18 9.89234E+16
Observations 56 56
Df 55
t Stat 1.585727846
P(T<=t) one-tail 0.059267217
P(T<=t) two-tail 0.118534434
Conclusion:
Thus, from the research study presented above, it can be concluded that:
 SERIAL CORRELATION TABLE & GRAPH: The table & graph shows that, Indonesia has the highest
serial correlation which indicates that the effect of one quarter remain for a longer period of time as
compared to the others i.e. India, Philippines. If any crisis occurs in the Indonesian economy, then it will not
be eradicated hastily and it has been established that in most of the cases the correlation coefficient is
merging to zero within two lags. But it is not valid in case of Indonesia and Philippines. It means that the
capital markets of Indonesia and Philippines are comparatively more affected by their previous lags.
 ACTUAL AND TREND PRICE INDEX RETURN AND ERROR GRAPH: The graph of all the three
countries reveal that India has the highest volatility in price Index Return. After India, Philippines have a
more volatile price index return and also found that there is more error seen in both the countries (India &
Philippines).
 ACTUAL AND EQUITY TERND RETURNS AND ERROR GRAPH: The graph of all the three countries
reveal that the Indian economy is the most volatile one as regards equity returns.
 ACTUAL AND BOND TERND RETURNS AND ERROR GRAPH: the graph of all the three countries
reveal that Philippines have the more volatile economy regarding Bond returns after that of Indonesia.
It has been statistically proved from the application of students’ t test that the selected economic indicators
have changed significantly in case of most of the countries when we consider the computed actual price and trend
returns of stock, investment equity portfolio, and bond markets return.
The correlation analysis defines the relationship between two variables & using log indicates the
effectiveness of capital market of all three countries. It also bring forward the errors found in all the three countries
that reveals the variance among the capital markets.

Reference:
1. Cho, K.O., Choi, K.W. (1998).Myeong-Hyeon Cho. Journal of Financial Economics, 1998.
2. T. K. GUPTA First published: May 1972 Full publication history
3. M. Y. Khan . Principles of Managerial Finance, Harper and Row, New York, 1976.
4. Prasad, Eswar S. and Raghuram G. Rajan. 2008. "A Pragmatic Approach to Capital
Account Liberalization." Journal of Economic Perspectives.
5. Cho, M-H. 1998, 'Ownership structure, investment and the corporate value: An empirical
analysis', Journal of Financial Economics.
6. Grewal S.S and Navjot Grewall (1984) revealed some basic investment . fundamental
analysis'and doing Equity Research (ER).
7. David Scott Rogo (February 1, 1950—August 18, 1990) was a writer, journalist and
researcher on subjects related to parapsychology.
8. Donald E Fischer and Ronald J. Jordan (1994) Security Analysis And Portfolio
Management 6th Edition, by Fischer Donald E and Jordan Ronald J, Publisher: Prentice
hall of India. Security Analysis.
Web Sites:
1. www.wikipedia.com
2. www.shodhganga.com
3. www.worlddevelopmentindicatactor
4. www.yahoofinance.com
5. www.moneycontrol.com

13 Capitalmarket

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

13 Capitalmarket

Uploaded by

Copyright:

Available Formats

© 2019 IJRAR June 2019, Volume 6, Issue 2 www.ijrar.

org (E-ISSN 2348-1269, P- ISSN 2349-5138)

Impact of Financial Globalization on the Capital

Srinibash Dash: https://orcid.org/0000-0002-0824-1445

Running title: Capital Markets of South-East Asian Economies

Keywords: Financial Globalization, Equity Returns, Bond Returns, Volatility,

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 231

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 232

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 235

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 236

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 237

Figure: 5.6. Error of the Model Constructed for Bond Returns

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 238

Table: 5.3. Average stock returns of Indonesia.

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 239

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 240

5.4. PPG Bonds of the India/ Indonesia/ Philippines:

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 241

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 242

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 243

IJRAR19K6338 International Journal of Research and Analytical Reviews (IJRAR)www.ijrar.org 244

You might also like