Return Spillovers and Market Integration: Assessing the Impact of Belt and Road Initiative in Emerging Asia

This paper studied the return spillover dynamics among Asian emerging equity markets before and after Chinese Belt and Road Initiative (BRI) was launched. We used daily closing prices data from 2005-2023 of the representative national equity indices of 10 emerging Asian markets.  The data sample is divided into pre-BRI and post-BRI periods for capturing structural changes. Using Spillover Index method based on Generalized Forecasted Error Variance Decomposition proposed by Diebold and Yilmaz (2012), we note that averaged dynamic return spillover is relatively stable as total return spillover index slightly decreased from 28.99 % in pre-BRI to 27.27% in post-BRI period. Malaysia, India and Philippine respectively dominate both the pre-BRI and post-BRI spillovers. Thailand and India consistently appeared as major receivers of return spillovers in both the period.  The findings on one side highlight the changing role of BRI on regional stock market integration while on other bears important implications for policy coordination and portfolio management.