Should East Asia include capital market integration as one of its convergence criteria for monetary integration? Monetary integration in the form of currency baskets or a monetary union would be facilitated if the capital markets were well integrated. East Asian markets are segmented and monetary cooperation in East Asia is not moving forward. This paper shows that even before the launch of the European Monetary Union, European markets were not showing visible progress in capital market integration, and that the degree of integration was below the degree of U.S.–Canadian market integration. The results suggest that monetary integration is not necessarily motivated by capital market integration.
This paper investigates whether financial markets in East Asia are integrated with global markets or with each other.We use two approaches: a volume-based approach and an asset price approach. Our overall results suggest global integration of these markets rather than regional integration and that there is no anchor market in the region that would match the advanced markets such as the United States. Though global integration is not a force that competes with regional integration, there seems to be no strong sign of the creation of an effective financial market mechanism in East Asia.