Financial integration in selected South Asian countries

    Research output: Contribution to journalArticleResearchpeer-review

    Abstract

    Purpose - 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. Design/methodology/approach - 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. Findings - 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. Research limitations/implications - 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. Practical implications - 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. Originality/value - 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.
    Original languageEnglish
    Pages (from-to)210 - 237
    Number of pages28
    JournalSouth Asian Journal of Global Business Research
    Volume1
    Issue number2
    DOIs
    Publication statusPublished - 2012

    Cite this

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    title = "Financial integration in selected South Asian countries",
    abstract = "Purpose - 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. Design/methodology/approach - 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. Findings - 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. Research limitations/implications - 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. Practical implications - 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. Originality/value - 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.",
    author = "Anil Perera and Jayasinghe Wickramanayake",
    year = "2012",
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    language = "English",
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    Financial integration in selected South Asian countries. / Perera, Anil; Wickramanayake, Jayasinghe.

    In: South Asian Journal of Global Business Research, Vol. 1, No. 2, 2012, p. 210 - 237.

    Research output: Contribution to journalArticleResearchpeer-review

    TY - JOUR

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    AB - Purpose - 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. Design/methodology/approach - 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. Findings - 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. Research limitations/implications - 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. Practical implications - 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. Originality/value - 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.

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