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Jurnal Ekonomi Malaysia

53 (2) 2019 165 – 176

Analysing the Effect of Portfolio Concentration Index and Stock Market Correlation
Menganalisis Kesan Indeks Kepekatan Portfolio Terhadap Korelasi Pasaran Saham Menganalisis Kesan Indeks Kepekatan Portfolio Terhadap Korelasi Pasaran Saham

Multimedia University
Faculty of Business
Jalan Ayer Keroh Lama
75450 Bukit Beruang Melaka
MALAYSIA

pllee@mmu.edu.my

Universiti Putra Malaysia
Faculty of Economics and Management
Serdang 43400 Selangor
MALAYSIA

leechin@upm.edu.my

Universiti Putra Malaysia
Faculty of Economics and Management
Serdang 43400 Selangor
MALAYSIA

lawsh@upm.edu.my

Universiti Putra Malaysia
Faculty of Economics and Management
Serdang 43400 Selangor
MALAYSIA

wazman@upm.edu.my

Abstract

The objective of this research was to test the effect of portfolio concentration on market correlation. The relationship between stock market linkages and portfolio concentration was investigated to gain a better understanding of the vulnerability that a country is subjected to during a global financial crisis. The portfolio concentration index of a country reflects its portfolio investment strategy and design, whether it prefers to concentrate its portfolio of stocks in a handful of target markets or to geographically diversify its investments. It was found that countries that had invested disproportionate weights in selected financial markets were significantly different from those countries that held less concentrated portfolios in terms of their effect on financial market integration. The portfolio concentration index, real interest rate differential, industrial production growth differential, and stock market size differential were statistically significant in influencing the correlation in stock returns when a fixed effects model was employed for a sample of 25 investing and 27 investee countries from 2001 to 2014. This study implied that although portfolio allocation affects financial market integration, it is not significantly related to financial spill-overs during crisis periods. The findings may shed light for investors regarding portfolio designs and allocation decisions.

Keywords

Portfolio concentration; stock market co-movement; stock return correlation
http://dx.doi.org/10.17576/JEM-2019-5302-12
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Lee, , Chin, , Law, , & Azman-Saini, (2019). Analysing the Effect of Portfolio Concentration Index and Stock Market Correlation. Jurnal Ekonomi Malaysia, 53(2), 165–176. http://dx.doi.org/10.17576/JEM-2019-5302-12

@article{lee2019analysing,
  title={Analysing the Effect of Portfolio Concentration Index and Stock Market Correlation},
  author={Lee, Pei-Ling and Chin, Lee and Law, Siong Hook and Azman-Saini, W.N.W.},
  journal={Jurnal Ekonomi Malaysia},
  volume={53},
  number={2},
  pages={165—176},
 

year={2019},
}

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