Chinese vs. US Stock Market Transmission to Australasia, Hong Kong, and the ASEAN Group^†

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

• Theoretically, the stock market movement together is consistent with developing trade relations. However, there is not necessarily strong stock market integration even though trade relations between these countries are strong. The proof is that Indonesia and China are Indonesia's main trading partners, but their stock markets seem to be segmented. Please read the following study results further: https://doi.org/10.3390/economies12120350
• Not only with Indonesia, China has a low level of synchronization with other ASEAN stock markets. More extensive literature exploration is needed to refute or support this premise. The strong effect of the US market on different stock markets, especially developing stock markets including ASEAN, is undeniable, studies have proven it
• Indonesia is the most important country in ASEAN and has become a major trading partner. It is also necessary to reveal the proportion of China with Indonesia and the impact on financial markets, especially the stock markets between the two countries.
• Therefore, the study needs to clearly state what the novelty that contributes significantly to the development of literature and has implications for investment policy in the scope of international diversification
• Literature review, both theoretical underpinning and empirical studies are needed as separate sections to support the premise and modeling framework
• The Methodology section presents more detail and completes how the stages of this study are carried out, not only limited to The Markov-Switching Framework
• Related to the use of stock price index data, it is necessary to explain what is in domestic currency or foreign currency because changes in exchange rates have an impact on the joint movement of stock markets between countries
• The Empirical Findings section presents more graphs and tables but lacks analysis, let alone Discussion, which is essential to explore the findings and debate the results so that there are arguments to support or refute the premise and previous related work
• Implications of research results, study limitations, and suggestions for future work agendas are essential parts of the Conclusion

Author Response

The paper has been reorganized with the new second section devoted to a review of past studies of co-movement within the ASEAN region and interactions with China.  A number of new references haven been added, including Endri et al.'s (2024) analysis focused on Indonesia.  Data on trade between Indonesia and China and Chinese FDI has been added on page 3.  As stated on page 5, the paper's key contribution is to show how significant Chinese transmission is seen once allowance is made for variations across different market conditions.   We have endeavored to more clearly demonstrate how this distinguishes our findings from past studies and also why we believe Markov-switching is key to identifying the Chinese effects found to be significant in the low volatility state.

A separate section 4 on Methodology and Data has been added.  In this section we clarify that the stock market indices are all in local currency terms.

Additional discussion has been added to the end of section 5, including explicitly relating our findings to past work.  The concluding section 6 has also been expanded.  New paragraphs address the implications of the paper's findings, limitations, and suggestions for future work.

Thanks for your careful reading of the paper and valuable suggestions that have, we believe, greatly improved the paper.

 

 

Reviewer 2 Report

Comments and Suggestions for Authors

This paper studies the transition of Chinese and US stocks to related markets. Overall, the paper is well written. I have a few minor comments for the authors to consider.

1. It seems the MRS model employs a normal density. However, stock market returns are heavy-tailed. The authors might want to use student-t distribution instead. The normal density may lead to biased smoothing probability to identify states.
2. The weekly data is not commonly used in recent research, considering the availability of high-frequency data. It may be better to consider daily data.

Author Response

We acknowledge on page 7 that the Student's t-distribution is better at capturing fat tails than is the normal distribution.  However, footnote 4 also notes that Calzolari et al. (2014) identify a cost in terms of lack of stability under aggregation.  Although other solutions exist, such as a tempered stable distribution, we felt that this was beyond the scope of our work.

The problem with using daily data in our case concerns the different trading hours that would create non-synchronicity problems.  As noted in footnote 5 on page 8, the Asian markets typically close before the US market opens, for example.  We reference Altinkeski et al. (2024), who also use weekly data owing to the problems posed by such disparate time zones.

Thank you for pointing to these valid issues and for your time in reviewing our work.

Reviewer 3 Report

Comments and Suggestions for Authors

The paper addresses an important aspect on linkages between Chinese and other equity markets in leading ASEAN economies. Regime dependence, based on volatility, is indeed an important consideration. The authors use a Markov witching approach to empirically estimate regime-dependent relationships, which is appropriate.

In motivating the regime dependence, important arguments are given that also inform the choice of control variables. These arguments could be extended with respect to the theoretical background that facilitates linkages in different volatility regimes, such as portfolio rebalancing as a result of changed risk-adjusted returns in different volatility regimes. While I do not believe that a detailed and technical derivation of theoretical models is needed, some reference possible mechanisms would be helpful. 

 

Lastly, the conclusion could address some policy implications that follow from the papers findings.

Author Response

We have added discussion of portfolio diversification and policy implications on pages 11-12.  We agree that there was a need for additional perspective on the paper's findings.

Thanks very much indeed for your helpful comments.

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

• The background section has not clearly stated the originality and contribution of the study conducted both in terms of literature and policy implications
• Strong theoretical underpinning and empirical literature related to Stock Market Transmission are needed to support the research premise/hypothesis and The Markov-Switching Framework
• The study results are presented in a limited manner, without an in-depth discussion of the empirical findings. The tables and figures given should be given a complete analysis

Author Response

• The background section has not clearly stated the originality and contribution of the study conducted both in terms of literature and policy implications.
• Please see the highlighted text on pages 2-3.  The paper's contribution is stated explicitly there.

• Strong theoretical underpinning and empirical literature related to Stock Market Transmission are needed to support the research premise/hypothesis and The Markov-Switching Framework
• Agreed. To that end, in addition to the Endri et al. (2024) reference suggested by you, eight other new references were added (all highlighted in the reference section).  The underpinnings and connections with past work are explicitly laid out in the highlighted text seen in pages 3-6.  The advantages of the Markov-switching approach are laid out prior to the additional details that follow in Section 3.

• The study results are presented in a limited manner, without an in-depth discussion of the empirical findings. The tables and figures given should be given a complete analysis
• Please see the highlighted text in pages 9-11.  Additional discussion of Figure 1 can be found in the highlighted text on page 8.  We discuss the findings as whole in order to avoid repeating the same points multiple times over the ninefold sets of results and figures.  The implications are explicitly detailed and laid out, with additional perspective on the paper's findings offered in the highlighted text on page 12.  

 

Round 3

Reviewer 1 Report

Comments and Suggestions for Authors

My suggestions and comments are sufficient, and the following process is left to the Editor to decide.