This paper examines the relationship between stock indices of Malaysia and the emerging East Asian countries, namely South Korea, Taiwan, Hong Kong and Japan. The cointegration analysis found a long-run relationship between the stock indices of Malaysia and South Korea. The results of the Granger causality suggest no evidence of any causality between the stock indices of Malaysia and Japan. Whereas in the short run, a unidirectional causality running from stock indices of South Korea and Hong Kong to that of Malaysia were detected. Conversely, stock indices of Malaysia and Taiwan showed bidirectional causality.

Stock market integration has several managerial implications, particularly to the investors and policy makers. A number of studies have examined the interrelationship between the stock indices in the global stock market, especially among stock indices across the developed countries (Kasa, 1992; Chung and Liu, 1994; Corhay et al., 1995; and Kanas, 1998). Other studies have also linked the interdependencies of stock markets of developed nations to those of Asian countries (Chung and Liu, 1994; and Masih and Masih, 1998). Indeed, due to the high growth rates recorded by East Asian economies in the past, scholars have diverted their attention in examining the integration of Asian stock markets (Masih and Masih, 1999, 2001 and 2002; Bilson et al., 2000; Roca and Selvanathan, 2001; and Ratnapakorn and Sharma, 2002). However, studies linking the stock interdependencies between the Newly Industrialized Economies (NIEs) and the emerging South-East Asian market, Malaysia are limited. This study aims to examine the Malaysia's stock market integration with those of NIEs, during the period 2001-2006. In addition, Japan was included in this study because of its increasing role in influencing the stock markets of Asia.

First, the paper focuses on examining the interdependencies of stock markets of Malaysia with those of Taiwan, South Korea, Hong Kong and Japan. It is found that after the Asian Financial Crisis of 1997, many of these countries have taken steps to liberalize their financial sectors. Theoretically, the process of financial liberalization should give rise to a more integrated market among countries. As a consequence of deregulation and liberalization, investor's opportunity to invest abroad widens between these markets. Bilson et al. (2000) found that regional integration among stock markets in Malaysia, the Philippines, South Korea, Taiwan and Thailand is much faster than their integration with the global markets. A focused analysis on the Malaysian markets and the NIEs is warranted not only because they share the same financial crisis history, but because these countries are also important intraregional trading partners with close regional economic cooperation.

Applied Economics Journal, Managerial Implications, Vectors Error Correction Model, VECM, Error-Correction Term, ECM, Foreign Direct Investment, FDI, Macroeconomic Variables, Global Ffinancial Crisis, Ffinancial Markets, Akaike's Information Criterion, AIC, Ffinancial Liberalization.