Financial integration in selected South Asian countries
South Asian Journal of Global Business Research
Article publication date: 17 August 2012
The purpose of this paper is to examine financial market integration in major South Asian financial markets: Bangladesh, India, Pakistan and Sri Lanka. Also to identify the required policy interactions and structural changes vital for broader economic integration.
This research opted for an empirical study employing co‐integration and causality techniques using a sample of stock and bond market data for major South Asian countries.
Empirical results show that both stock and bond returns are co‐integrated, indicating common stochastic trends. Stock market integration appears to be much stronger compared to the less developed and data deficient bond markets.
The study relies on widely cited empirical methodology. However, adopting alternative specifications and also allowing for time variant factors while examining inter‐linkages between stock and bond markets seem to be appropriate for robustness of results.
Increased integration would help in reducing arbitrage opportunities in these financial markets, having implications for market participants and promoting economic growth through financial deepening, in general. Since the degree of integration is dependent on policy and institutional infrastructure, ongoing efforts to develop financial sectors and reforms would need to be accelerated to further strengthen the degree of convergence between securities markets.
The paper fulfills an identified need to examine financial market integration in the SAARC region, using data for both stock and bond markets. This is the first study to use bond market data for SAARC countries and it also adds to the limited literature of bond market integration.
Perera, A. and Wickramanayake, J. (2012), "Financial integration in selected South Asian countries", South Asian Journal of Global Business Research, Vol. 1 No. 2, pp. 210-237. https://doi.org/10.1108/20454451211252741
Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited